International Business Assessment

Introduction

Ultra High Temperature (UHT) milk products primarily specify the sterilisation of milk through subjecting the liquid to extensive thermal treatment for purposes of pasteurisation. According to Liu and Niyongira (2017), the global market of the UHT Milk products could be quantified to be valued at $ 20 million during the financial year of 2017-18 and the current growth forecast involving this industrial sector involves the CAGR growth of rate of 5.9% in the next 8 years culminating in the financial year of 2025-26. As per the research of Nayak and Waterson (2017) the specific period 2009 to 2017 had also witnessed the quantitative incremental growth of the UHT Milk production to up to 94.9 billion litres on the global basis. Apart from this, the research of Ortega et al (2015) has outlined that this quantity of production of UHT Milk has reached to 107.4 billion litres by the end of 2018, globally. According to Saunders et al (2017), UHT Milk products have also managed to penetrate the regions where non-refrigerated households are situated in the most extensive numbers and apart from this, the UHT Milk products have also been becoming increasingly available at the regions where scarcity of milk availability has been a consistent factor. In this context, the corresponding study report would be formulated to evaluate and determine a host of different circumstantial market imperatives concerning the expansion of the business activities of the particularised and London based high profile SME into the developing market of China regarding the business objective of favourable market possession achievement concerning the product of UHT Milk meant for children of the age group off 3 to 11 years. The process would be formulating the study structure involving five different stages. The initial stage would involve the identification of the catalysts of such a business drive of the SME into the Chinese market segments involving the UHT Milk products. The second stage would be concentrating upon the assessment of four different trade barriers which could prove to be serious impediments concerning the efforts of the SME regarding product propagation within the targeted national markets of China. This stage would also consider the various opportunities as well as the uncertainties which could be the outcomes of the various trade and commercial policies formulated by the national government of the market region under consideration. In this context, the third stage would delve into the corporate social and ethical considerations which could become of critical significance for the UK based SME while having to expand within the realm of the Chinese UHT Milk product based markets. The fourth stage would establish the significance of the cultural preferences which could become core constituents of customer service management by the SME under consideration within the Chinese market segments. The study conducted on this stage would be deliberative of the various activities which could be directly or indirectly associated with the methods of conducting international business within the Chinese markets. Ultimately, the mechanisms of expanding into the Chinese markets after establishment of the presence of the SME under consideration, would be analysed in the final stage.

Catalysis of business expansion into China

SWOT analysis of the UK Dairy SME regarding business expansion prospects in China

Strength

As has been opined by Adekola and Sergi (2016), the primary driver of strength of the expansion strategy undertaken by the UK based SME within the Chinese market domain is related to the fundamental qualitative utility associated with the product of Ultra High Temperature treated milk products in comparison to conventionally pasteurised products. Bai, Gazze and Wang (2017), has elaborated on this perception to highlight that this fundamental quality lies in the UHT Milk being a fresh milk which could be processed at a temperature limit which is considerably higher than that of the conventionally processed and pasteurised milk. This UHT processing involves comparatively much lesser time duration concerning the pasteurisation method to be completed. Furthermore, the UHT Milk, are the processing could be finished, is packaged within special containers which are always kept at a sterilised state. Furthermore, the addition of any preservative is strictly avoided in case of preparation of such UHT Milk. According to Buijs (2019), such qualitative aspects related to the UHT Milk products provide it with a considerably longer shelf life in comparison with other form of milk products which are not sterilised at such an extreme temperature. Thus, the additional shelf life of the UHT Milk by 6 to 9 months at the minimum, provide such a product with the actual advantage which would be required for the company under consideration to convince the existing and prospective Chinese customers regarding the utility of such a product in contrast to the various other regional or localised processed milk products. Furthermore, another catalyst which contributed to the drive of the company under consideration to expand into the market domain of China to propagate the UHT Milk product meant for children within the previously specified 3 to 11 years of age, could be comprehended as the added benefit of this milk product of being able to be stored within the room temperature and not being susceptible to the dearth of proper refrigeration systems till the milk could be kept within the sealed packets. As has been observed by Chandra (2016), the persistent and considerable growth in urbanisation and in the culture of preferring apartments to be the primary places of habitation and dwelling with the Chinese socio-economic scenario, has highlighted the necessity for such consumable products which could require no refrigeration at all prior to their consumption by the purchasers. This could be better acknowledged as most of the Chinese consumers of such processed milk products living at the urban apartments have limited refrigeration services available to them and this problem of the Chinese consumers regarding successful storage of the milk products could be effectively resolved by the UK based SME by ensuring UHT Milk supplies to the Chinese market.

Weaknesses

According to Chen, WANG and SONG (2015),the weaknesses which could be identified to be inherent of the UK diary SME under consideration since the product inventory of the company involves both skimmed and semi-skimmed UHT Milk products and does not include the full cream UHT Milk product since the targeted consumer base for such a product range is consisted of the children of the particular age group of 3 to 11 years and the offering of UHT Milk products which are involve high measures of cream addition, could be a particular source of health concerns regarding such children. However, as has been observed by Chen and Li (2017), this could lead to the formulation of an unfavourable perception of the product inventory of London based dairy SME within the Chinese customer base. Apart from these, one perceptual preference of the Chinese customers regarding the UHT Milk products has the potential of becoming a serious constraint for the UK based diary company under consideration and this is directly related to the general notional apprehension amongst the Chinese society that the nutritional value of the UHT Milk is not comparable to the necessary measure which could be essential for children during their early physical developmental age such as within the previously mentioned age group of 3 to 11 years. Thus, Deeth and Lewis (2017), has outlined the necessity of customer perception management by the marketing efforts of the UK based high profile dairy operative SME so as to consistently emphasise on the product value of the UHT Milk offered to the Chinese consumers in terms of such milk product being of greater nutritional quality in comparison to the locally available options.

Opportunities

Furthermore, the research of Deeth (2017) has suggested that incremental income measure on the individual household basis at the Chinese national economy has been one crucial source of the development of greater customer preferences towards availing of premium edible and sustenance products such as that of the UHT Milk. This has been accompanied by the rising trend of the inadequate cold chain maintenance setups within the relatively large market bases of developing countries such as that of China. D'Incecco et al (2018) have enunciated that the market of UHT Milk has been experiencing persistent and rapid expansion within the Chinese economy and this has culminated in the 60% of the entire range of processes milk products being that of UHT processed products. As has been delineated by Fuller and Beghin (2015), the out of the global population of urban dwellers extending up to 690 million till 2016, approximately half has been comprised of Chinese urban inhabitants. This statistical estimate is forecasted to expand up to 300 to 400 million personnel by 2030 and such developments are collectively indicative of the opportunities which could be utilised by the UK based dairy SME in terms of accessing and sustaining market spaces within China with an ever increasing potential customer base. Hall (2017) has suggested that in comparison to the rural population, the urban inhabitants at China are, to a greater extent, prone to become influenced by the western cultures and habits and thus, the potential of UHT Milk based products gaining greater popularity within the Chinese dairy milk consumption market could be considered to be a definite proposition in future. The two significant factors which could contribute in the growth of such a market are better education and greater income levels which have differentiated the Chinese urban population from the rural inhabitants. Thus, this trend of increasing urbanisation and consumption of milk products could be considered to escalate the UHT Milk product based demands to a greater level in the near future at China and Imbruno (2016) has determined that by 2021, the increase in the consumption level of UHT Milk could expand up to 10% on a yearly basis. Apart from these opportunities, another consequential aspect regarding the future growth potential of the UHT Milk producer SME under consideration could be comprehended from the research of Ishaq et al (2016). This would be the newly emerging dietary trend in China which involves the consumption of milk by children outside their dwellings such as at the sports fields or playgrounds or at the schools or even at places such as gymnasiums. Such as trend has been of great value for the business expansion propositions from the perspective of the dairy milk production companies worldwide which have been investing heavily in the Chinese market consisting of dairy products. According to Kapaj and Deci (2017), at various schools and gymnasiums at China, the rising trend has been to provide the students with milk products including the UHT Milk substances to formulate a specific and sustained habit of drinking milk in the children in their early childhood age and this provides a consistent and lasting opportunities for business organisations such as the SME operating out of the United Kingdom to establish itself within the existing market sphere at China.

Threats

The research of Kim, Choe and Lee (2016) has highlighted that within primarily the extensive market of China which is related to consumption and sales of the milk products, one of the major restraints involving the processed as well as the UHT milk products could be outlined in the form of the persistent reliance of the Chinese consumers on the unorganised and decentralised suppliers of milk and associated products. This existence of an extensive and very large number of dairy farming suppliers of various milk related products, including those of the cow and buffalo milks which are supplied in their raw format, could prove to the principle threat perception for the UK based UHT Milk product provider under consideration. Another factor of concern for the London based company could be the fact that most of the Chinese consumers generally purchase their required consumables such as milk and related products on a daily basis and thus are not accustomed to the aspect of having to store their purchased products for long. This habitual practice could prove to be one of the effective constraints for the propagation and sales improvement of the UHT Milk products.

Trade barriers in China

According to Weil (2017), the existing upgrades concerning the trade agreements between the United Kingdom and that of China is unlikely to provide the dairy exporters with specific benefits since there had not been any effective, sustained and fundamental alteration or transformation within the Chinese tariff mechanism. Wu et al (2016), has highlighted that the tariff volume of the in excess to the existing $ 100 million on a per annum basis could be considered to remain in continuation till the next 5 years and could only be subject for reconsideration by the financial year of 2024-25. The United Kingdom has been one of the key exporters of dairy products within China and Zhang, Ma and Morse (2018) has stated that during the financial year of 2017-2018, the dairy product exports from the United Kingdom involving the various substances such as the milk powder, butter, UHT Milk and even cheese could be measured to have topped at the worth of $4.1 billion on a per annum basis. However, the constant rate of high tariff could prove to be one of the most serious constraints and barrier for the dairy product exporting companies of the United Kingdom to China.

Such exorbitant trade tariffs are primarily applied only after export products could attain a specific and previously determined level which could be considered to be that of a benchmark retention measure in terms of volume of the foreign export products and in terms of their estimated monetary value within the existing Chinese market based economic perspectives. As has been observed through the research opinion of Zhang and Roberts (2016) there are two particular trigger points which set in motion the tariff related trade barriers within the Chinese market and these could be identified as the processed or thermally pasteurised milk products including that of the UHT Milk and the volume of milk powder which could be exported by certain suppliers such as the companies based at the European Union including those which are based at the United Kingdom. This general barrier to foreign export in the Chinese markets could prove to be the primary constraint regarding the most extensive export of milk products to the Chinese market while the concurrent financial season could be in commencement.

This has been in marked contrast to the previous forecasts and trade and economy analysis derived notions during the signing of the free trade agreements between the People’s Republic of China and the United Kingdom back in the year 2008. As has been opined by Zou and Li (2016), back then, the general notion was that the demand for the dairy industrial products exported by the UK would be so effective and prominent within the burgeoning Chinese middle and upper classes that such tariff barriers would be removed slowly but positively over the next few years.

Apart from these, Buijs (2019) has outlined that equal significance and importance would have to be accorded to the non-tariff mechanism based regulatory requirements which have been put in place by the Chinese governments. One of the most significant hurdles in this context, in terms of impeding the dairy product based export potential of the UK based SME under consideration could be comprehended as the difficulty related to customs clearance at the Chinese administrative regions, including the local and national levels. An instance could be drawn in this regard when during July 2018, the General Administration of Customs of the People’s Republic of China had published the updated Notification of Safety Risk Warning involving the import of consumables such as dairy industrial products. This had proved to be profound and substantial impact on the working processes as well as the business propagation strategies of different organisations such as food processors, exporters as well as importers. Hall (2017) has observed that this latest enlistment of different foreign food exporting companies subjected to stringent control by the Chinese Customs administration includes 58 European food exporters as well as processors. These companies have been now subjected to extensive as well as additional measures of qualitative and administrative control measures involving their export activities of their products in China in the future.

Furthermore, another significant trade barrier which hampers the foreign food and dairy product exports at the domestic Chinese markets is the extensive bureaucratic documentation procedures which are required by every foreign exporter to undertake to obtain the export licenses and customs certification of clearance prior to bringing in their exported cargo to the internal Chinese distributers. For various such export oriented organisations which have been attempting to find an alternative avenue which could alleviate the persistent burden incurring greater delays of export product deposition resulting from the requirements of fulfilment of extensive documentation, multiple rounds of sustained negotiations have been undertaken by their respective countries with the pertinent Chinese governmental institution to identify the potential alternatives or substitutes to the documentation requirements which could become acceptable for the host country.

In this context, the final trade barrier could be identified to be the extra measures of control put in place by the administrative organs of the Chinese government which have been tasked with the responsibility of regulating the food and consumable exports to China. Such measures of control could formulate the trade barrier to the successful and unimpeded export of dairy products to the Chinese markets since the additional data which could be required to be provided to obtain the clearance certificate from the Chinese customs departments could contribute to the enhancement of transportation and production costs which would have to be incurred by the food manufacturing and exporting companies such as the UK based high profile SME selected for this study report. Apart from this, further hurdles remain in the form of fulfilment of the requirement of the local importers to furnish their data regarding the agreements of distribution and joint venture of product promotions to the Chinese customs. One such requirement has been outlined by Wang and Yip (2018) to be that of the publication of letters of guarantee regarding the labelling and packaging services associated with the UHT product exports. These factors could complicate the management of timing and logistics for the UK based dairy exporter under consideration.

Ethical and social issues to be considered by the UK SME

Corporate ethical and social policy management is central to the success of market penetration as well as establishment of a predominant position within the Chinese internal market spheres for any foreign company. In this context, Wang, Chen and Klein (2015) have observed that the UK based UHT Milk producer organisation could utilise the geographic dispersion methods in assigning the marketing personnel at China with the accurate perspectives of marketing messages which could add value to their efforts of promoting the profitability and benefit perception related to the UHT Milk products. This involves greater concentration on the factor that UK is generally considered to be the exporter of reliable and qualitative products with an acceptable measure of transparent corporate social responsibility management track record. This process could entail the categorisation of the 31 administrative provincial division of China into different regions based on the aggregate numbers of distribution centres which the UK based UHT milk producer and exporter could set up. Next, the organisation would have to invest into the propagation of the CSR management related announcements with specific emphasis on the beneficial aspects of providing the dairy products produced at the UK to the children of predetermined age group since it has been a scientifically observed fact that the treatment and pasteurisation of milk at very high thermal temperatures could destroy the nascent bacteria and spores completely and with greater effect in comparison to other forms of processing of milk. The aspect of environmental safety management would become the key factor here on which the company under consideration would have to capitalise. Greater initiatives would be required in terms of projecting the environmental sensitivities at the generally high CSR sensitive regions such as at the urban complexes of Beijing, Shanghai and at various other locations situated at the east and southern coastal regions of China.

Cultural preferences of the Chinese society to be considered by the business

According to Lin (2017), the Chinese society is primarily a relationship oriented social structure and this form of structural composition is known as the Guanxi in Mandarin linguistic lexicon. This could be translated in terms of social structural aspects as a composition of different networks which could interact at various formal and individual levels. Such form of interactive networking is vital in terms of successfully penetrating and sustaining any gaining business advantage within the Chinese market spheres. The emphasis is primarily on the minimisation of setbacks, risks and failures. Building of sustained working relationships on the basis of trust and mutual information could establish the structure of formulation of international partnerships between foreign and domestic companies of China.

Expansion Methods to be chosen by UK dairy product supplier

Li et al Fu (2017) has specified that formulation of joint ventures and effective distribution networks is fundamental to the successful expansion probabilities of any foreign export oriented company within China such as the UK SME exporting UHT products. Apart from these, the emphasis has to be concentrated on the marketing efforts where labelling and packaging processes could provide the Chinese customers with the visual clues regarding the supposed superiority of UHT processed milk over locally sourced dairy products in terms of being greater health sustaining for the children of 3 to 11 years of age. This factor would have to be included in the provisioning of the product descriptions on the packaged UHT dairy product units so that effective information could be available to the potential customers which could be then utilised by such customers to successfully contrast the qualitative value of such processed milk from UK with the dairy products of local suppliers.

Another method of expansion could be the utilisation of collective corporate activity management orientation by the company under consideration. The aspects of more regulated teamwork and consensual process of decision formulation regarding development of marketing messages could lead to greater involvement of the local assistance from the targeted Chinese markets. Information sharing is also a key prospect in this regard. The key methods of expansion which such effective workforce management could serve are the identification of the locations of actual markets, targeting of the potential customer bases, emphasising on the independence of advanced age children (those of 9 years of above of age), researching about the product demand and success potential in those markets and the management of governmental regulations.

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