Internationalization of companies has taken a rapid growth in the current 21st century. The below study is about a UK based SME in London which wants to tap into the Chinese market for providing products to kids. The business has attained a high growth in recent years and looking forward to continue with that (Jenkins, 2013). Also business has been awarded with various awards for its products. Present report will discuss the business drivers that can help in the expansion of the company in the new market. Government regulations and trade barriers will be illustrated in this assignment.
1) Business Drivers Behind Expansion
While moving into international market an organization needs to identify its key business drivers to increase its profitability. A key business driver impacts a companies performance in a major way. In General sales and revenue are the drivers of business and it is easy to monitor them (Alon and Herath, 2014). There are some internal and external factors which impacts the performance of the firm, among them what are entities key drivers those are to be focused on. Some of the key drivers which can drive UK based SME in Chinese markets are:
- Strategy: A idea that turns into a business plan is what strategy is. Strategy for the UK based SME is to enter into the new markets with majorly focusing on the sale of its two products - Oat Porridge and Oat Breakfast Biscuits to the kids. As per condition of Chinese market, firm needs to make strategy by understanding the perception of people what they want. That would help them in successfully establishing their brand in the new location.
- Marketing: This is the era of digital things and for a product to be successful in the markets no traditional marketing will become the game changer (Piekkari, Welch and Welch, 2014). In order to make aware people about your product, about your presence in the market companies needs to market its product through various social media channels since usage of social platforms in china has grown rapidly as per the previous reports.
- Products and services: For UK based SME they should provide products which are likable in the locality of china. The company needs to modify their products according to the taste and preferences of the people.
- Infrastructure: Building an outlet which is accessible from anywhere in the city and convenient for the people is what drives the sales(Dinnie, 2015). Also the infrastructure is about the space, processes that needs to be modified as per the location company is working in.
- Pricing strategies: For the UK based SME company thinking about moving into the new locations is challenging because different people have different perceptions and income level, knowing your product and knowing what customers will pay for that particular product is what has to be examined from the point of view of china.
2) Trade Protectionism
Moving into the global markets firms need to have a look on the restrictions on trade of the country that are planning to move into. These trade protectionism is applied by the governments to keep unlawful or hazardous products out of the country. Trade protectionism is a policy of restriction of imports of foreign goods into country (Trade Protectionism: 4 Methods with Examples, Pros and Cons, 2017). This is been applied by governments to improve the BOT(balance of trade) of the country. They want to increase the exports of the country. There are different type of trade barriers which is divided into two categories that are Non-economic barriers and Economic barriers.
- Licenses: This is the most used form of Non-economic barriers on the regulation of imports. In this system authority issues permits for doing transactions in foreign. This may take some forms and procedures to have a license to set a business at our desired locations. UK based SME needs to consider this factor and has to identify the Chinese government regulations before entering into this market (Dinnie, 2015).
- Import Deposits: Import deposits are kind of deposits which is charged from importer and importer must pay to bank amount which may be or may be not equal to the costs of goods that are imported. It may be possible that UK based SME can afford such import deposit then it would be difficult for it to survive in the Chinese market for longer duration . By looking upon this factor it would be able to make strategy so that it can sustain in the new market for longer period.
- Standards: Standards are also the most commonly used barriers by the governments of the country in order to protect its people from harmful products(Enqvist, Graham and Nikkinen, 2014). This type of barrier is usually impose on the factors like labeling, testing of products, in order to sell domestic products. If SME offers Chinese population below standard products then it may be possible that it would face huge loss. It has to maintain these standards so that it can establish its venture in the new market for longer duration.
- Tariff: Tariff is a tax on some imported goods. Through Tariff price of goods which are imported are raised. It makes the product more expensive and people tends to perceive lower products than expensive one's and thus the domestic one's are given advantage over the foreign(Zapletalova, 2014).
- Embargo: Embargo is not a kind of tax or limitation, it is an order which is given by the government to completely prohibit the trade with another country. Not every country is completely banned, some from whom relations are not up to the mark those are banned.
- Quotas: It is a limitation on a particular type of good which is imported into the country. Also through it governments try to protect the domestic business from foreign competition. In some cases the countries who are importing request the exporting countries to impose voluntary export restraints.
- Subsidies: Subsidies are given by government to promote the business of domestic industry which in turn will create a competitive advantage of domestic business over the foreign businesses(Polsa, 2013).
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3) Ethical and Social Issues
When a company plans to move into the new markets, company will find it several times that legality and ethical framework of different countries are different in nature. Organization needs to address those issues accordingly in order to get success in the expanding countries. Some of the issues that needs to be taken care of for UK based SME while moving into the Chinese markets are:
- Employment: Employment generation is the biggest issue when firms are moving to new markets, even when a company have qualified with all the legal matters organization needs to think on the hiring of the people to work for them and needs to make decisions on the pay levels for them(Boussebaa and Morgan, 2014). By this way UK bases SME will be able to manage its operations well and staff members will be able to make connection with the Chinese audience significantly.
- Pollution: Many foreign countries have environmental laws that makes companies to work ethically and not discharge the harmful products into the environment. In case of UK based SME they don't generate any harmful products so they did not want to worry about this issue, But should keep in mind for the future purposes (Dinnie, 2015).
- Human Rights: Most basic and sensitive issue which comes with expanding to foreign markets is human rights improvements. Based on your presence that supports or serve as catalyst for human rights. Some human rights may include freedom of speech, freedom of movement, etc.
4) Cultural Preferences
Culture of any country where an organization wants to expand to is always been the important factor in success of that expansion. A culture of a country includes its religion, language, political- economic systems, education level, social class. So, When to discuss about a particular countries Influence on business, these factors or elements needs to be considered. these factors reflect habits, attitudes, beliefs of the society and with these factors effect of culture on international trade will be clear(Pereira-Moliner and et.al 2015). Here are some of the elements of culture which have its implications on international businesses.
- Languages: Language is crucial in interacting with your business partners and colleagues and helps in understanding their part of information as well. Use of language is necessary when it comes to doing business in foreign countries. As china is concerned for healthier growth of business local language should be adopted by the firm. UK based SME has to train its staff members accordingly so hat it can make good connection with the consumers and can satisfy their needs.
- Religions: Religion is an important factor when we talk of culture preferences in relation to international businesses. Religions can impact the purchasing behavior through fundamental principles and values that it possess(Leung and Morris, 2015). An individuals attitude towards purchasing a product or service reflects his/her behavior towards it.
- Social Institutions: Social institutions are refers to the set of roles, norms, values which in a particular social constitution is configured comparatively stable form of human resources. China is a country with compelling social associations, which affect Chinese enterprise activities a lot. So SME needs to give preference to this element when it enters into the new market (Dinnie, 2015).
- History: History is the reflection of the society. For a company to enter into foreign markets historical characteristics of that country needs to be considered to make sure that firms products are suitable to the habits, tastes and values. For china companies need to look up at the traditions which includes Chinese items more in the food sector, so the approach of the organization to introduce new product in Chinese market should be that it relates with taste and preferences of the people.
5) Expansion Methods
Due to the rise of globalization it has been easier to move to new countries for small business concern and startups. So being a small medium enterprise based in London it will be easy to expand its business in china with its two products at the initial level. There are still some barriers with rules and regulations, culture, languages and religions play their part as well, but technology has been the key every time and in the present era it has impacted and helped in a significant way (Seven Ways to Expand: From Local to Global, 2014). Many businesses think of going to global markets but end up nowhere because they did not employ significant expansion methods which they can, in order to mark there presence in international market. Above are some of the expansion methods through which UK based SME can expand to china:
- Joint Ventures: Joint venture is just a type of partnership business between two or more people or firms. It is different from partnership business due to the its terms of agreement between the parties. UK based SME can adopt the joint venture practices to make its place in the markets of china (Dinnie, 2015).
- Trade agreements: Through trade agreements company can enter into the markets of china. A trade agreement is an agreement which is done between two countries in order to promote each other domestic businesses and rules of trade is governed by the countries itself.
- Franchising: Franchising is the best option among the other expansion methods to enter into the Chinese markets for the company because here through franchising there will be less barriers like language barriers will get evaporated because of local people taking franchise of the business(Alimov, 2015). Franchising is a type of license where other person has been granted a right to carry on the business, who is known as franchisee.
- Licensing: Through licensing also a company can enter into foreign markets. The licensing is an agreement between two parties license and licensee, the party who grants license and the party who receives license. Here the right is given to licensee that licensee can produce and sell the licensor's products. So this will allow SME to join hands with one of the domestic companies of the Chinese markets.
As per my opinion, UK based SME who wants to expand to china with the offering of products in breakfast kids range with majorly emphasizing on two products needs to take the route of Franchising as their expansion method. This will benefit company in most appropriate manner then any other method (Dinnie, 2015). Through Franchising firm can achieve Motivated management, Growth speed, Ease of supervision, Improved valuations, Reduced risk, Language barrier is reduced, investment is reduced.
Based on this report, it has been concluded that while moving into international market there are lot of factors that needs to be kept in mind for success and growth of the business. As per this report business drivers are the key to enter in global markets. While moving to new markets it is essential to understand the government policies of the respective country firm is moving in. Also things like social issues, cultural preferences needs to be considered and finally firm has to make decisions on the methods through which they are going to make their presence in global markets.
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- Alon, I. and Herath, R. K., 2014. Teaching international business via social media projects.Journal of Teaching in International Business.25(1). pp.44-59.
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- Dinnie, K., 2015.Nation branding: Concepts, issues, practice. Routledge.
- Enqvist, J., Graham, M. and Nikkinen, J., 2014. The impact of working capital management on firm profitability in different business cycles: Evidence from Finland.Research in International Business and Finance.32. pp.36-49.