Business drivers behind Expansion of Business of Company into China

In the growing globalization of the businesses, it is essential for a business organization to consider the contemporary issues while aiming to expand the business into international markets. This report will describe an understanding of the issues that the company may face while expanding the business into the Chinese market. This report discusses the business drivers for expansion, trade protectionism issues, cultural preferences, ethical and social issues, and expansion methods for expansion of the business by an upcoming high profile SME of the UK into the Chinese markets (Hamiloton and Webster, 2012).

There are several business drivers behind the expansion of the company into the Chinese markets which are followings as:-

Increase sales and profitability- The Chinese market is a high-growth potential market that provides a range of business opportunities for the overseas firms to expand the businesses through entering into the Chinese market in order to enhance the sales volumes and profitability. This is one of the most significant factors that drive the company to go internationally by operating into the Chinese market for achieving the high-growth businesses with large sales volumes and huge profits.

Economy of Scale- This is another factor for pushing the company toward the expansion of businesses through the entry into the Chinese market. The internationalization of the businesses will assist the firm to achieve the greater economies of scale. It will also enhance the corporate image, economic status, market share, and positioning of the company in the marketplace.

Enhance innovation and creativity- This is an important factor that will drive the international business strategy of the company through entering into the Chinese market. The expansion of the business will enhance the customer base that will assist in new product development through innovation and creativity to the existing product after significant R&D efforts and production technological investment (Harrison, 2013).

Ensure success of the product – To expand of the business into the international markets will improve the product positioning in the global marketplace that will enhance the chances of success of the company’ products into the Chinese markets after developing the high brand awareness and loyalty into the mindsets of the customers from China toward the company’s products.

Risk Diversification- The internationalization of the businesses reduces the company’s exposure to the external risks, such as economic fluctuations, political barriers and trade codes, country risks, and regulation barriers because selling products to the customers worldwide will assist in the diversification of the risks through operating the businesses internationally.

Enhance Resource capabilities and competitive strengths- Expanding business into the international market through operating into the Chinese markets will assist in enhancing the competitive strengths and resource capabilities of the company while going internationally. This is the factor that encourages the company to expand the businesses in order to improve the competitive strengths and resource capabilities of the company.

Market growth drivers- The high-growth potential market of China also encourages the firm to make significant business ventures into the Chinese markets. The Chinese economy has witnessed a sharp rise in the average household items because of average growth of GDP approximately 10% that results into rise in the disposable income of the middle income groups. For example, the urban population of China has been growing at exponential rates and will expectedly rise from 607 million to 822 million people that will rise the demand for the company’s foods products (Hill, 2011).

Trade Protectionism issues

Chinese infrastructure development- The rapid developments in transportation, infrastructural improvements, speed of the distribution times, rapid urbanization, cost efficiency, and increasing demand for the fat& protein products encourage the company to make significant investment into the Chinese markets. 

Economic barriers-

Fiscal and monetary policies- The fiscal and monetary policies of the Chinese government, such as taxation and fluctuating economic conditions of the Chinese environment may create problems to the business expansion of the SME firm. The taxation and economic legislations, such as VAT, tariffs, export subsidies, anti-dumping legislations, international patent systems, preferential government spending, import quotas, administrative barriers of the Chinese government may affect the international business operations of the company. The fluctuations in the interest rates, inflation rates, exchange rates, unemployment rates, GDP, and currency value may affect the international expansion of the firm in the Chinese environment. The adverse economic forecasts, such as high interest rates and exchange rates, low GDP and high currency value will affect the businesses of the SME (Richter, 2012). While, on the other hand, the favorable economic conditions of the Chinese business environment will support the external business operations of the company in China.

Tariffs- tariff is the tax on the imported goods imposed by the federal government of China that will raise the prices of the goods and services. The tariffs (also known as import duties) will influence the internationalization operations of the SME into China by limiting the exporting operations and revenues of the firm by imposing the tax on the domestic produced goods.

License- this is a type of legal provision that provides grant for operating the business into another country without any intervention after getting legal approval in the form of a license. The license is required for the SME to import a certain types of goods into the Chinese country.

Quota- this is a limit on the amount of imported goods that the firm is required to import the goods into the Chinese country. The quota limits the supply of the goods to a certain quantity that raises the prices of the imported goods beyond the market equilibrium prices and decreases the demands for the products. 

Trade regulations and foreign investment laws- The trade legislations of the Chinese government, such as customer protection laws, fair competition regulations, employment laws and legal practices, environmental laws, taxation policies, and foreign investment laws of the Chinese Government are such important legislations that may create problems to the firm while operating the businesses in the Chinese marketplace. These legislations will affect the external business operations, processes, and activities of the company into the Chinese market. The Chinese government also supports the foreign investments by the overseas inventors through providing them an adequate infrastructure for the new business development into the Chinese marketplace.

Non-tariff barriers- the non-economic barriers, such as packaging and labeling standards, shipping regulations, national foods standards of China, onerous customs procedures, harbor and airport permits, and health and safety legislations are such as regulation barriers that may affect the international business operations of the SME into China.

Ethical and social issues to be considered by company

There are several ethical and social issues that the SME UK should consider while operating the business internationally. These ethical or social issues include employment practices, human rights, fair competition regulations, corruption, environmental regulations, and moral obligations. The SME firm should follow the fair competitive standards and policies as per the fair competition act for improving the corporate image of the company in the global marketplace. The firm should not follow the monopolies or monopolistic competitive strategy that may ruin the image of the company in the Chinese marketplace because it will not be appropriate for the firm to attract the large number of Chinese customers by offering the kids breakfast items at high prices. The company should comply with the international laws and legislations, environmental laws, fair employment practices, customer’s food safety legislations, competitive regulations, taxation, and code of practices to represent a good corporate image of the company in the Chinese business environment.

The firm should maximize the stakeholders’ value by considering their needs, interests, and expectations so that the harmony business relationship could be developed and maintained with the international clients and business vendors. The firm should represent the valued and high quality of the kids’ breakfast items to the customers by considering the fresh and nutritional contents in the kids breakfast biscuits and oat Porridge foods. It is the ethical responsibility of the firm to present the right and leading information to the customers about the company’s products so that good business relationships could be established with the clients. The company should operate the business in the Chines business environment based on trust, integrity, honesty, and fairness by avoiding the falsified or unethical practices, such as bribery, corruption, discrimination, inequality, and frauds (Menipaz and Manipaz, 2011). For example, the SME could issue a code of ethics to all employees that will assist to create an ethical working environmental as well as maintain the harmony working relationship with all employees.  

 The firm should make ethical decision-making centered on protecting the rights of the customers and employees by ensuring that all business activities, processes, and operations are fair and transparent, as well as the values and beliefs of the customers are protected. It is also social responsibility of the firm to show high commitment to the environmental protection laws and regulations by reducing the carbon footprints, waste disposals, and gas-emissions so that the societies and the living people could be not harmed. Along with this, it will be effective for the firm to provide the equal employment opportunities to all employees by reducing the discrimination, inequality, and corruption in the employment practices so that each employee could get the fair and equal employment treatment. The firm should also provide the equal treatment to all employees by facilitating the training and development programs, employee welfare programs, monetary benefits, and promotions. The business processes of the SME should be associated with the ethical principles and practices can also be associated with human rights which will empower the employees regarding their wages, allowances, safe working conditions and non-discriminatory policies (Ashwathappa, 2010). For example, the firm should follow the national standards of the food packaging, labeling, and food quality standards by considering the trademark, logo, and national foods& beverage standards of China.

Cultural preferences to be considered by the business

The corporate governance practices, corporate social responsibility, and moral fundaments in the international markets should be an important part of the organization so that the organizational activities, processes and operations could be controlled and regulated in a systematic manner by having a focus on external and internal corporate structures with the intention of regulating and monitoring duties, responsibilities and actions of directors, managers and other managerial staff.  For example, the ethical principles and CSR practices will assist in establishing accountability, transparency, and fairness in the trade practices for building harmony working relations with the stakeholders and society.

Cultural is a collective set of values, assumptions, beliefs, policies, and behavioral conventions that are shared by the people with each other. The SME should consider the cultural preferences, such as regional language, local traditions, customs, customers’ buying behaviors, body language, business trends, technological adaptations, international laws and regulations, code of practices, and competitive trends of the Chinese business environment for operating the businesses successfully into the Chinese marketplace. The broad understanding of the cultural factors is important to understand the local cultures, traditions, customs, regional languages, and local market conditions of the Chinese markets. The cultural understanding is also essential for the firm to examine the market demand, competitive trends, and cultural differences in the different markets of the Chinese country (Christiansen, Bryan, Kasarc, and Fatmanur, 2016). For example, the cultural preferences could be considered by the SME to under the political barriers, legal issues, economic conditions, socio-cultural characteristics, socio-economic conditions, and customers’ preferences of the customers.

The cultural preferences will also be important for the SME to enhance the standardization and adaptation of the products by ensuring the suitability of the Kids breakfast items of the firm to the foreign markets of China. The cultural preferences are important to know about the buying behaviors and customers’ profile, income levels, and social status of the people. These are also important to know about the customers’ needs, likes, shopping pattern, and understanding the competitive trends, business environment, economic fluctuations, political barriers, regulation mechanism, taxation, government intervention and spending pattern, market demands, and social issues in the Chinese country while operating the businesses internationally. The cultural understanding of the international perspective requires technical proficiency, such as communication techniques for the successful negotiations with the international clients. The cultural match into the international territories may be useful for the international business expansion of the SME through either merger or acquisition with the local Chinese firms.

The cultural understanding of the Chinese business environment will assist to manage the international business activities, such as joint ventures through merger or expansion, exports, trade relationships with business vendors, knowing the customers’ needs and expectations, and competitive firms’ strategies. It will assist in reducing the cultural differences into the countries, like China by having more similarities into the business environments of two countries so that the cultural mismatch could be avoided (Cherunilam, 2010). The appropriateness of the cultural match of these two countries (the UK and China) will be important to understand the local cultures of the Chinese business environment so that the marketing strategy could be designed accordingly by using the appropriate advertising channels and marketing campaigns in order to boost the sales volumes and customer base through expansion into the Chinese markets. On the other hand, the cultural blunder or greater cultural distances may have some negative effects, such as loss of customers through negative customers’ feedbacks and lack of brand awareness and loyalty of the customers toward the company’s product that may lead to lesser revenues and profits of the company. For ex- the Chinese people greatly demands for healthy and organic foods products for their children rather than continental foods or fast foods items. The firm could represent them the high quality of foods breakfast items to a range of children by involving a standard level of essential elements, nutrients, and quality level.  The service staffs of the SME should understand the local customs, regional language, cultural understanding, and customers’ communication styles for operating the businesses into the Chinese markets successfully. The great cultural understanding and cultural match of the Chinese business environment will create the new business opportunities for the businesses of the SME into China. 

Expansion methods to be chosen by company

There are several expansion methods that may be useful for the internationalization of this SME UK by entering into the Chinese market. These are following as:-

Exporting- This is one of the most significant internationalization methods that may be useful for the expansion of the SME through selling of the products into the foreign markets of China rather than the original domestic markets. This expansion can be used by the SME for starting the foreign investment ventures into the Chinese kids foods markets through exporting the kids breakfast biscuits or oat porridge feeds to the customers throughout the Chinese markets. This expansion strategy will assist to make huge profits by operating the less-risky business.

Joint ventures or Strategic partnership- This is the most popular internationalization method for the business expansion that could be used by the SME for starting the business operations through strategic partnership or joint ventures with the local firms of the Chinese market in the form of merger, acquisitions or take over with the local firms. This method will allow the firm to share the risks and opportunities by understanding the Chinese market better(Verbeke, 2013). For ex- the strategic alliance between Toyota (Japan) and General Motors is a type of planned joint venture.

Licensing- This is a form of internationalization method that allows a firm to start the international business ventures by operating the business in another country through a legal license after getting approval from the Chinese government. The firm can use its own patents, trademarks, design, logo, and technical know-how provided by the Licensor from the Chinese government. It is a good way to start business into the Chinese market because it requires little investment and involvement as well low risks and good relationships with the business vendors.

Franchising- This is another expansion option for the internationalization of the businesses of the SME by making the franchise ship contract with the local Chinese kids foods supplier firms. The franchisor will give the rights to the franchisee firms to sell the company’s products under the name, logo, title, and trademarks of the company. The franchising will allow the franchisor to share the risks or threats with the franchisee firms (Schaffer, Agusti, and Dhooge, 2014).

Management contract- In this method, the fees is paid by the company for transferring the administrative facilities, technological know-how, and management personnel abroad to assist the company to expand the businesses. This involves placing the positions of the managers and other seniors executive with their rights, duties, and responsibilities to handle the overseas operations of the SME while aiming to invest into the Chinese markets.

Turnkey Operations- this is a form of international collaboration method that will allows the firm to contract with other corporation to operate the foreign business operations of the SME. 

Among the above identified internationalization methods, it is stated that the Exporting will be most appropriate method for expanding the businesses of the SME UK through exporting the kids breakfast items including kids oat porridge and kids breakfast biscuits into the Chinese markets. This expansion method will be effective for the firm to enhance the market share, product positioning, sales revenues and gross profits of the company by initiating the business ventures into the Chinese market because the firm will have a great degree of ownership and good control on the exporting operations of the SME. This method will be useful for the firm to provide the less risky and potential business opportunities for expand the businesses through exporting the kids’ breakfast items to the Chinese market.

This method will be effective for the firm to have full or partial control over the foreign marketing strategy including pricing, distribution, products or services.  

The rationale for the selection of exporting strategy as an appropriate expansion strategy is to promote major exports of the kids’ breakfast items with the help of other local exporting firms. This strategy will be useful for the firm in attaining the strategic advantage, cost benefit, and brand awareness by accessing the geographically dispersed customers across the Chinese markets (Cook, 2016). This expansion strategy will be effective for the firm to earn huge profits and revenues through selling the kids breakfast items in the large quantities into the Chinese markets. It will also be efficient for the firm in reducing the excessive operating costs and manpower efforts as well as building good customer relationships with the business customers because the kids breakfast foods items will be directly exported to the UK markets. This market entry strategy will also be important to boost the sales volumes, clientele, and profits by exporting the products indirectly through the intermediaries including the sales agents or representatives, and foreign distributors. 

Conclusion

From the above studies, it can be concluded that the Chinese market is the high-growth potential market with great demand for the kids’ breakfast foods products that will provide an opportunity for the firm to expand the businesses by introducing the oat breakfast biscuits and oat Porridge into the Chinese market. Several moral obligations and social issues including the ethical responsibilities for the firm were discussed while operating the business internationally. The trade protectionism barriers (economic and non-economics) affecting the businesses of the firm were also described. The importance of the cultural understanding with the Chinese perspective was also highlighted. The firm can expand its business into international markets through adopting the market expansion method, such as Joint ventures, licensing and franchise agreement with the local Chinese firms.

References

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