Expanding UK UHT Milk to China

Introduction

Ultra-High Temperature (UHT) processing is the process in which the food processing technique stabilised the liquid food such as milk, in order to kill the spores and germs in milk. This process is specially used for production of high-quality milk. UHT milk is packed in a sterile container, which gives the unrefrigerated shelf life to this milk for at least six to nine months if not opened. SME or Small and Medium-sized Enterprise is referred to as the business that has fewer than 250 employees in the company. UK is one of the largest UHT milk produces in the world, which rank third after Germany and France. Import of UHT milk in UK has risen in 2015 with 139 million litters as compared to the 75 million litters in 2014. UK exports 18,033 tons of dairy product including UHT milk and Cheese, which have potential impact on its economy. From the ONS (Office of National Statistics) report, it is seen that the UK had more than 5.2 million SMEs in 2014, that accounts for 99%of all the business. report from the Enterprise Research Centre (ERC), Goldman Sachs shows UK's business is run by 10,000 small businesses. The ONS report suggests that SMEs have consisted of a large portion of the UK Economy. The productivity growth of this SME industry boosts the overall productivity, profit and economic growth of the UK businesses. In the UK, SME is the key driver of the economy that accounts for 47% of the UK based revenue and 60% of all the private sectors jobs in the UK. Evidence-based report shows that innovation and creativity are the key drivers for UK based SMEs. Due to changing social perception regarding health. In China, people are more likely to prefer the healthy dairy products. UHT milk is one of the most effective dairy products that can be easily digested by both the children and older people. For this reason, China is considered as highly advantageous market for UHT milk exporters. This business report will discuss the overall international business operation of a UK based SME, that is going to establish its business into China. This UK SME is going to sell UHT milk for pre-school children in China. This report will represent a comprehensive discussion on the key business drivers, business expansion methods, external market environment analysis and trade barriers. Moreover, this business will also analyse the social and ethical issues that this SME can face in China market in order to establish its market footprint.

Business Driving forces:

As stated by Ahmad (2015), international or business depends on the business drivers that are the condition, factors or resources in the market influencing the overall business growth and productivity of that company. There are different driving forces that affect that impact on the company’s trade strategies, such as cost, trade relations between the UK and China and political support in China. UHT milk is aseptically packed in the sterile container, which makes it ready for consuming directly from the carton without boiling. It is heathy as well as easier to store for the fridge and non-fridge households. The cost of UHT milk is relatively higher than the ordinary milk due to its high quality and heathy manufacturing process. As it assures quality product and heathy lifestyles for people, it would be appreciated in China and other developing counties. Moreover, political system of China acts as the important driving forces to UK based SME. However, China has highly stable political system that support the trade enhancement between China and other developed countries. This would make positive impact on UK based SME. Moreover, China has healthy trade relation with UK, in which China government support the UK based ventures in order to develop business in China market, to grow China economy and employment structure.

The UK based SME is going to enter in the Chinese market to expand its business. therefore, it needs to focus on the key business drivers that would have a potential impact on the business decision, operations and productivity of the business. in the foreign market, the important business drivers that influence the overall decision and operation of a company are political, economic, social, technological, environmental and legal conditions of factors in that market. In this aspect the international business consultant of UK based SME needs to consider as well as analyse the above-mentioned factors in the Chinese market in order to promote the UHT milk for preschool children

PESTEL Analysis:

International trade theory:

Comparative advantage:

Comparative advantage is one of the important business strategies taken by organisation in order to sell goods and services at lower opportunity cost than that of the trade partners (Amir et al. 2016). In order to grab the China market, the UK based SME needs to fix a reasonable cost for UHT milk which would be lower than the trading partners and domestic UHT milk manufacturers in China. Through implementing comparative advantage, the UK based SME would be able to grab customer attention in China market. In order to fix the cost at lower rate than that of trading partners in China, the UK based SME needs to make proper market research which would assist marketers to understand which rate would be appropriate for selling UHT milk in China market.

Absolute advantage:

As stated by Amato et al. (2017), absolute advantage is ability of organisation to sell good and service at lower price per unit as compared to the other competitor who sells the similar goods and products. Through using the absolute advantage, the UK based SME can produce the goods and service at lower price than the competitors in China market by using the small number of inputs. In this aspect, the UK based SME can use small number of labours, ingredients and machines in order to maintain proper balance between the manufacturing cost and selling cost.

Trade barriers:

According to Alaref et al. (2019), trade barriers are the restriction and trade constraints that the government imposed on the foreign marketers in order to secure the local businesses. Trade barriers are imported in the form of additional; cost or trade limits on the importers and exporters in terms of regulating their international trade in the foreign country. In order to market the UHT milk to the Chinese market, the UK based SME needs to consider the different trade barriers that are imposed by the China government on foreign marketers. Therefore, four major types of trade barriers such as Tariffs, non-tariffs, quotas and the trade regulation implement by the government. Therefore, the business consultant of UK based SME needs it to analyse the following fur important trade barriers in order to enter the Chinese market.

Formal Trade barriers:

Tariffs:

Tariff is the tax that is imposed by the government on the products and services of foreign marketers in order raise the market price of these goods and services as compared to the local goods and service (Amato et al. 2017). From the evidence-based report, it is known that China has already cut the tariffs on more than 187 consumer products, which include the milk, dairy products and other food and beverages. This is a positive sign for the UK based SME in order to market and sell the UHT milk to the preschool children. Evidence-based report also stated that China government has reduced the tariffs on dairy and milk products from 17% to 8%, which would assist the foreign marketers who are intended to enter into the Chinese market. This decision taken by the China government focuses on expanding the economic growth and productivity of China food and beverage market. However, there are little controversies regarding this decision taken by the Chinese government. As mentioned by Amir et al. (2016), sometimes the reduction of tariff on the import and export can be initiated by the government to highlight the local product over the imported goods. From the evidence-based report it is seen that, although China has reduced the tariff rate for dairy and link products, it also reduces the market price of local milk and dairy product in order to provoke customer to chose the local products over the imported milk and dairy products. in this aspect, the UK based SME is going to face severe competition challenges in China from the local dairy marketers.

The tariff can be of different types that can affect the business decision, marketing operation and market strategy of foreign marketers.

Scientific tariff:

This is levied by the government to raise the market price of imported product and goods of the foreign company. China believes in imposing scientific tariff n foreign products and service, in order to make their market price higher than the local service and goods. In the dairy and milk products that are imported from foreign companies, China has levied the scientific tax that increases the market cost of these products. therefore, the UK based SME would face the rising cost on the UHT milk, which can shift the preference of parent in China from this company product to the local UHT milk that is manufactured by the China Dairy Corporation Ltd.

Retaliatory tariff:

Retaliatory tariff is levied by the trading partners on the company when it enters the new market (Astini and Tafiprios, 2017). Although China has cut the overall scientific tariff on dairy and milk products, the retaliatory tariff is an important step taken by the China government to impose trade obligations and limitation on the foreign marketer. In this aspect, the UK based SME would face the retaliatory tariff by the local trading partners in China food and beverage market. Moreover, through imposing this retaliatory tariff, China has initiated the trading partnership of the local dairy marketers in order to drive proper economic growth. This initiation by China government would interfere with the trade freedom and individual business decision of UK based SME. For example, based on the guidelines od retaliatory tariff, the UK based SME would be offered to work with China dairy Corporation Ltd as its trading partner in order to get several advantages such as skilled labour in lower cost, reputed suppliers and dealers of milk. However, this market strategy of China can pose additional trade limitations on a business decision and market profit of this UK based SME in term of grabbing the attention of parents of preschool children.

Non-tariff:

Non-tariff is the trade constraints posed by the government in the foreign market, that is other than the direct imposition of additional cost on the product and service of a company (Audretsch et al. 2015). In this type of trade barrier, the government sets restriction and definite limits of the measurements of the goods and products of the foreign company. China has also imposed the non-tariffs on international marketers in order to offer the market benefits to local marketers. This trade barrier would limit the amount of UHT milk that the UK based SME can sell into the Chinese market. Therefore, the business consultant of this SME needs to analyse the proper measurement or amount which is set by the Chinese government for the selling dairy products and UGT milk by the overseas marketers. Such as China has imposed bars on the oversees food and beverage industry, in which it is set that the foreign companies need to use at least 50% of the locally produced sugar in China, in order to manufacture the food products in this market. Therefore, the UK SME needs to buy the 50% of sugar needed to produce the UHT milk from the home market of China in a higher price that would raise the market price of this product than the price set the Local Chinese marketers.

Quotas:

Quotas are considered as the restriction by the government on monetary value and quantity of the specific service and goods that are imported over periods of time (Ayandibu and Houghton, 2017). Most of the economist considers quotas as the non-tariff barrier which is imposed in the quantity and measurement of particular imported goods and services. However, the process of imposing quotas is completely different from other trade barriers. In China, the UK based SME will face the quotas, in which the China government would hand out the government issues license to this SME in term of marketing the UHT milk in this market. Based on the guidelines of this agreement, the UK based SME needs to follow the regulation and policies set by the China government on the production and selling of milk and other dairy products. For example, the UK based SME would consider the Anti-Trust law, Health Safety acts, Children Health Act and Food Safety Act that are developed by the China government in order to control over the foreign marketers.

Informal barriers:

Logistics:

In china market the UK based SME can glace the logistic barriers such as delayed shipping, higher shipping charge, poor distribution channel and delayed delivery of goods. In order to deal with these challenges, the UK based SME needs to make effective logistic management system, in which use the well-organised delivery channel and supply chain management process in order to sell the UHT milk timely ton the sellers.

Lack of market data:

Another important barrier that the UK based SME can face in Chin market is lack of market database of China dairy market. China government pose strict regulation on maintaining confidentiality of official database regarding market operations in order to support the local market and domestic industries to grow. In this aspect, UK based SME needs to make proper market research on China dairy market to get proper knowledge on customer preference, domestic milk production amount in each year and percentage of milk consumption in each year by the local people.

Language issue:

The UK based labours, mangers and staffs of the SME would face language challenge in China. It would be severe challenges in making proper interaction with the local marketers and suppliers. The language issues also affect the UK based venture adverse in order to interact with the local customers and marketers.

Cultural barriers:

China has different culture as compared to UK, which affect the overall marketing and trading strategies of the UK based venture. In China cultural change pose important impact on the eating behaviour, product preference, buying behaviour and market approach of customers. As the staffs and mangers of this UK based SME are use to with UK based culture but not with the China culture, it would take time for them to understand actual market tone and customer preference in this market.

Trade policies and regulations:

As stated by Burch et al. (2016) trade policies and regulation are set by the government to control the overall business operation of the foreign marketers in order to offer the marker opportunities to local businesses. China believes in expanding the local business through imposing strict regulation on the overseas marketers to raise their product and service cost as compared to the local products and service, which can compel the customer to chose the local goods and service. In order to promote the local food and beverage market, China also has imposed several trade policies and regulation on the overseas marketers which restrict their trade freedom and business opportunities in the Chinese market. in order to sell the UHT milk ton pre-school children in China, the UK based SME needs to follow and implement the guidelines of Health and Safety policy, Factories Act (1948) and the Food Safety Law of the People's Republic of China. Moreover, China government has also set the policies for packaging and manufacturing process of children food products, which can interfere with the business operation and marketing decision of UK SME. Moreover, China government has shift it focused more on the recycling and ecological food products that would have positive health benefits. In this aspect, the business consultant of UUK based SME needs to set the innovative manufacturing and packaging strategy for UHT milk that would meet the guidelines related to the recycling process. China government also set strict regulation on the packaging and labelling of the food products, especially the products for children, which will assist the parent to understand the ingredients and food value of the products. moreover, the guidelines for product labelling would pose a restriction on this UK based SME to use the proper ingredient in order to manufacture the tasty and attractive UHT milk. Therefore, the trade regulations set by China government can pose several barriers to the market decision and the trade operation of this UK based SME.

Ethical and social issues:

Internal business faces several social and ethical issues in the host country that affect its business decision, marketing moves and overall business operation. As stated by Burns (2016), the sometimes the social and ethical principles in one country can be highly irrelevant and unethical for overseas companies. In terms of marketing UHT milk, the UK based SME can face the following ethical and social issues that impacts on the business decisions, marketing process and operation of this company.

Ethical issues:

Ethics can be referred to as the accepted principles of right and wrong that can govern the perception and conduct of a person, members and organisation (Czarniewski, 2016). In the case of international business, the differences in political, legal and economic system can interfere with the ethical principles of overseas organisations in the host country. In China, The UK based SME can face several ethical issues that are related to human rights, employment, corruption, environmental regulation and moral obligation of the company.

Human rights:

Human rights are the basic freedoms and rights for all the human being to which they are entitled. As stated by Epifanova et al. (2015) international business deals with the human right issues in the host country that interfere it the ethical principles of the organisation. In order to enter the China market, the UK based SME needs to consider the rights of labours, suppliers, consumers and the local dealers in China. For example, China government has made it mandatory for the foreign companies to provide the proper remuneration, working facilities and health and safety facilities and insurance to all the China-based staffs. On the other hand, the existing staffs in the UK based SME can be unable understood the UK based labour laws and policies. Therefore, the SME can face severe complexity in maintaining proper balance between different human rights policies of UK and China.

Employment practices:

The employment pattern and condition in the host country can be completely different from the home country of the overseas company (Dugguh, 2017). Therefore, the organisation can face issues that, which standard of employment should be applied in operating business in the host country. In order to enter into China market as a manufacturer and marketers of UHT milk for pre-school children, the UK based SME can face issues in terms of adapting the labour policies, factories regulations (Factories Act,1948), labour cost and daily of wage system of the lower graded staffs and suppliers charge in the China dairy market. There is a huge difference between the UK and China regarding the employment standard, labour cost, suppliers charge and daily wage system. Moreover, the newly appointed Chinese labours and staffs in the UK based SME may be unable to adapt to the different culture and work standard of this company. In addition to this, the SME can also face issues related to conflict and misunderstanding between the UK based and China-based employee after expending the business China market, which can interfere with ethical principles and regulation of the company.

Environmental policies:

Ethical issues arise when environmental regulation in this host country is inferior to the home country. On the contrary Giaoutzi et al. (2016) argued that sometimes the difference between the environmental policies in the home and host country can pose several ethical issues on the overseas companies. in the case of the UK based SME, China has imposed on the dairy marketers and manufacturers the obligation regarding product packaging and labelling process. the UK based SME needs to follow the regulations that are set by China government on product manufacturing and processing. China also focuses on the recycling and ecological products, which would have a high range of health benefits. Moreover, the foreign company needs to focus on waste management, lowering environmental pollution and renewable energy production. Therefore, these regulations can interfere with the individual organisational policies and market strategies of UK based SME. Moreover, in order to manufacture the UHT milk, it is important to use high temperature, the certain amount added sugar and preservatives, which can not be matched with the quality of the ingredient set by China government. Moreover, in order to produce the UHT milk with using renewable energy and waste management process, can enhance the overall manufacturing cost of this product which can raise the market price of UHT milk. As a result, the parent in China would buy the UHT milk from the local company at cheaper rate rather than investing in the UK based SME.

Social issues:

International business also faces social issues in the host country that affect the business process, marketing pattern and overall business operation of the company (Guo et al. 2016). The UK based SME would also face the social issues in the China market in order to manufacture the UHT milk to the pre-school children. Social issues can be in the form of demographics, class structure, society culture, shared belief and attitude of community people, education and the social convention in the host country. There is an overpopulation in China that increases day-by-day. However, the distribution of wealth does not occur equally across the population. Therefore, the majority of the China community reside at the lower income level that cannot afford the nutritious foods for their children. This is an important social issue for UK based SME, in which they have to target only economically strong parents in the urban and metropolitan area in China, which is very smaller in number as compared to the vast number people who reside in the below the poverty line. Moreover, the overpopulation affects the income level and purchasing power of people in China which has a direct adverse impact on the productivity and profit of UK based SME. On the other hand, in China, the customers are now more concerned about their health, which shift their preference from the high calorie and fat foods to healthy and ecological foods. This would impact on the UK based SME in order to consider the changing preference and decision of the customer while selling the UHT milk for preschool children.

Cultural preference:

Culture in host country affects the overall business process, business decision and marketing strategy of the foreign company (Jones et al. 2018). The cultural trend in China has changed a lot during the last three decades due to the changing attitude, behaviour and belief of country people, that has the potential impact on the marketing process of foreign companies operating their business in China market. Better education, skill training and health awareness campaigns assist the China people to shift their preference from the luxurious foods to simple and healthy food and drinks. Moreover, the cultural trend in China is based on green and ecological food products that are healthy for children as well as for adults. UHT milk is not ecological products, moreover, its products lead to yield several waste material that cannot be recycled. Therefore, the UK based SME is going to face severe cultural issues in terms of selling UHT milk to pre-school children. In this aspect, the UK based SME needs to focus on implementing the new as well as an effective method of introducing waste management and recycling process during the production of UHT milk. However, the introduction of waste management and recycling process during production of UHR milk would enhance the manufacturing cost of this product.

Expansion method:

Business expansion is important for the international organisation in order to expand the business in a foreign country (Julien, 2018). The UK based SME is going to take different useful expansion methods such as trade agreement, licencing, joint venture and franchising in the China market in order to become the potential manufacturer and seller of UHT milk in China.

Trade agreements:

This is the formal documents that are formed between the host country government and the foreign organisation (Karadag, 2015). the trade agreement is one of the most important business expansions in the foreign country. Through signing a trade agreement, the UK based SME wants to address the tariff, quotas, non-tariff and another trade barrier that are imposed by the China government on the internal organisation. according to although trade agreement poses some obligations and limitation of the foreign company in the host country, it also offers the trade freedom in a different region of the host country. Moreover, the Free Trade Agreement (FTA) between China and the UK, makes the trade easier for this UK based SME in the China market. Through signing a trade agreement, the UK based SME would be free from additional unnecessary taxes, state-level taxes and additional cost, which would assist this business to expand its productivity and profit.

Licencing:

The licencing agreement is set between the foreign companies and the host country, which offer the licence to the foreign country to trade in the host country with maintaining the regulations set by the host country government. Through forming licencing agreement for selling the UHT milk in the Chinese market, the UK based SME would be able to operate the business without any interruption of government. Moreover, through getting a proper licence in order to sell the product in both the urban and metropolitan cities in China, the UK based SME can enhance its brand reputation in the Chinese market.

Joint venture:

As stated by Miles et al. (2017), the joint venture assists the foreign company to collaborate with the local companies in the host country to get the benefits of local labours, suppliers and dealers. The UK based SME has taken the decision to make a joint venture with China Dairy Corporation Ltd, in order to get benefits regarding the availability of suppliers, perfect raw materials, low-cost labours and high skilled staffs.

Franchise:

The franchise is a good option for international entrepreneurs in order to expand their business (Julien, 2018). The UK SME has intended to open the franchise outlets in different states of China in order to expand its business.

Conclusion:

From the overall discussion, it can be concluded that small and medium enterprise is a small sized business that consists of less than 250 employees. International of business is associated with several opportunities and limitations. The UK based SME is would face several challenges in order to market and sell the UHT milk in China market. ethical and social issues are important challenges that the UK based SME would face after entering the China market. Moreover, therefore different business drivers in the host country that have a potential impact on the overall business strategy and the decision of the foreign companies. The business drivers are the political, social, environmental, technological, economic and legal factors in the host country. In order to enter into the Chinese market, needs to analyse the current status of these above-mentioned factors. Moreover, the SME needs to take effuse strategies in order to address the impact on these factors in its marketing and business strategies. Moreover, in order to operate in the Chinese market, the UK based SME would face several trade barriers such as tariff, quotas and non-tariffs that affect the cost and overall production of this entrepreneur business. Therefore, the UK based SME needs to take the innovating marketing strategies in order to deal with the challenges in the Chinese market for expanding its business in the proper way.

Recommendation:

From the above discussion, the following methods can be recommended to the UK based SME in order to expand its business in China market.

The UK based SME is recommended to focus on the quality and quantity of the UHT milk in order to compel the Chinese customers to chose this product over the locally produced UHT milk.

It is also recommended to this SME to take god promotional strategies such as an advertisement, promotional campaigns in the malls and food marts of China and offer a free small quantity of UHT milk to the preschool, children.

The business consultant of this UK based SME should make proper market research on the preference, culture and social beliefs of customers in China market. Moreover, the business consultant would also analyse the current demand and perforce in the China dairy market.

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