Executive Summary
Marketing recognizes the needs and wants of consumers and completes them by fulfilling them with goods and services. Requirements and desires build a condition of discomfort, fixed through purchasing merchandises that fulfils these desires and requests. Several current cultures work on the standard of trade, which indicates that persons focus on manufacturing specific products and exchanging them for other possessions they choose. A marketplace is a group of individuals who share similar desires. Marketing entails those actions involved in working with markets by trying to actualize potential trades. The principle talents of promotion rely on manipulating the level, scheduling, and structure of request for production, service, business, location, individual opinion. Therefore, advertising is essential for a firm’s success in turbulent and competitive economies, especially in foreign marketplaces. In the prevailing years, various service establishments and non-income companies have found it vital and valuable.
Introduction
Over the past years, there have been significant changes in the dairy sector and its retail in the economy instigated by the integration and globalization to international markets and the increase in consumer consumption trends and lifestyle changes. Consequently, top Small-and-Medium Enterprise (SME) retailer such as Iceland Foods Limited has faced significant challenges which require shifts in production and marketing of the products (O’Connor, 2017). The Iceland Foods retail company is in operation in Beverage, Tobacco and Food industries in more than a dozen nations and exposes itself to different market challenges and risks (O’Connor, 2017). It is a UK chain of supermarkets that operates in more than 1000 locations and is founded by Malcolm Walker in 2005. The global marketplace has led Iceland Foods company to seek strategies on staying afloat in the competitive and unstable environment to expand its operations to other economies such as China, where it intends to supply the Ultra High Temperature (UHT) milk. This paper aims to assess the business drivers behind Iceland Foods company expansion to China, trade barriers impacting their growth and ethical and social practices that the company should consider. It further intends to examine the manufacturer’s cultural practices and expansion methods to stay competitive in the Chinese market.
PESTEL Analysis of Chinese Dairy Market
Political
Both formal and informal government regulations that organizations are expected to abide by impact China. Numerous companies have claimed that the political influence on the economy is the most unstable one. Over the years, the state has focused on developing e-business, compelling existing companies and aspiring ones to adjust their business operations to suit the e-commerce requirement (O’Connor, 2017). Therefore, the Iceland Foods company should significantly improve its online operations to suit the state rules. Such a move will see the company successfully integrate into the economy and gain a market share in the already existing online marketplace.
Economic
The macro-economic aspects such as saving and interest rate, foreign exchange, inflation, and economic cycle influence the aggregate investment and demand in a country. Conversely, micro-economic dynamics such as competition models impact the competitive advantage of the Iceland Food company. China’s gross domestic product (GDP) rate stipulates that every citizen adds more value to society, thus increasing a customer’s buying power (O’Connor, 2017). Therefore, parents are likely to purchase more UHT dairy products since they have increased disposable income.
Furthermore, The People’s Bank of China has amplified interest tariffs, and the reserve requirement for commercial banks is also increased. The central bank expects that reservoirs lend less and impose limits on home purchases (O’Connor, 2017). The move will significantly influence the Iceland Food company’s operations as most consumers will be limited to several products they procure, affecting its profitability compared to other markets. However, the organization can use the nation’s fiscal aspects such as inflation, growth sequence, and the sector’s economic pointers which include, consumer spending to forecast on the Chinese dairy industry growth (O’Connor, 2017). The move will see the company determine its profit projections and market share within the economy.
Social
China’s cultural and social aspects play a significant role in impacting a business’s culture in an environment. Shared beliefs and approaches of the target market also influence how marketers at Iceland Food company will understand its consumers and design promotional messages for their products (O’Connor, 2017). Family size and social behaviour also impact the decision-making process of the company. The target market of the dairy corporation is consumers between the age of 3-11 years. Despite the age group forming a significant part of the nation’s population, government regulations on the children limit per household impact the target market’s growth. Therefore, the retail company can focus on developing quality products with more health benefits to help them gain market share in the slowly growing target market.
Chinese consumers are usually health and environmentally conscious and prefer dairy products that boost their immune systems. Therefore, Iceland Food company should tap into this opportunity and assess its consumers’ needs before presenting its products to the market. E-business has also changed how local customers view shopping as Chinese people often shop online (O’Connor, 2017). Taobao is the biggest domestic e-business platform, and several clients devote a significant amount of time on the website. However, there is a group that prefers to avoid the perceived risk linked to online spending. The retail organization should invest in online marketing and retailing platforms such as Taobao and Alibaba to reach the e-shoppers. Furthermore, its management should set up physical distribution stores to cater to shoppers who prefer physical shopping.
Technology
Technology is fast distracting numerous industries across the local and international marketplaces. Over the past five years, the dairy industry has changed as innovations have impacted its value chain structure and production channel (O’Connor, 2017). Dairy companies within the Chinese economy are expected to abide by the new technological inventions to improve milk and dairy products’ quality. For instance, the regulations on dairy products stipulate that companies should adopt the super-cooling technology to enable fresh products to travel long distances by ship and delivery vehicles (O’Connor, 2017). Furthermore, the blockchain invention links information blocks to develop a permanent record that shows the history of animals and products in the dairy business through the whole manufacture cycle. To realize success and productivity in the Chinese market, Iceland Food company should invest in adopting current inventions necessary to produce dairy products.
Additionally, the dairy company should not only focus on the industry’s technological analysis but also the pace at which technology impacts their industry. The fast speed of innovation may present the firm with limited time to adapt and become productive (O’Connor, 2017). In contrast, slow speed will slowly and fully incorporate the required technological requirements.
Environmental
Different marketplaces have different environmental standards which influence the productivity of a company in those economies. States like China have liability clauses in case of environmental disasters and mishaps (O’Connor, 2017). However, the Chinese administration gives healthy tax breaks to organizations that function in the renewable sector. Iceland Food Company focuses on preventing milk spoilage and pathogenic infection through pasteurization (O’Connor, 2017). The process helps keep the bacteria from contaminating the milk and other dairy products, thus ensuring the consumers are given quality and environmentally friendly commodities.
Furthermore, China has strict air and water pollution regulation in the Food, Beverage and Tobacco sectors. Companies in the industry are expected to limit carbon gas release and spoiled milk into the environment. Iceland Food retailer can utilize this opening by investing in environmentally friendly operations such as milk preservation through fridges (O’Connor, 2017). It can further adopt the use of renewable energy such as biogas to aid in the production process. Therefore, before entering the Chinese market, the firm should carefully assess the environmental standards required in the economy.
Legal
However, the legal framework for e-business is still in its adoption stage since the Chinese economy has little experience formulating e-commerce regulation for intellectual property rights protection and tax. Despite being the source for cheap labour, the new regulations on employee wages expect companies to abide by the $15 an hour rule, and defaulters could face close operations (O’Connor, 2017). The Asian economy does not have laws supporting the confidentiality, acknowledgement of digital monograms, customer privileges, and authentication of online agreements. Also, China’s anti-trust regulation in the Tobacco, Food and Beverage industry applies across all the industries and players are expected to abide by the law (O’Connor, 2017). Therefore, the Iceland Food company can formulate policies and strategies that will enable it to adapt to its successful integration laws. It should also carefully assess the Chinese market before entering the economy as it can result in the theft of the company’s secrets, thus a general competitive edge.
Trade Barriers
Regulatory Barriers
Regulatory barriers are restrictions such as pollution, product, and safety standards placed by governments to limit imports. They specify the requirements that products should meet or exceed to be allowed into foreign markets. For instance, importing dairy products to China is limited by tariff quotas, which vary by product quantity. The objective of regulatory barriers is to keep the local milk products high and prevent citizens from purchasing lower-priced foreign dairy commodities (Rolland, 2017). Such restrictions pose a significant challenge to Iceland Food company’s growth in the Chinese market since the consumers tend to trust the local milk products over foreign ones.
Anti-Dumping Tolls
Dumping usually happens when the exporting manufacturer retails products below stated prices. Since the World Trade Organization has not introduced the anti-dumping charges, the Chinese government is at liberty to impose a duty on Iceland Food Company’s dairy products (Rolland, 2017). China administration’s move would mean that the company pays more taxes before introducing it to the market. However, most firms claim that their products are manufactured below the cost to buy more time, and UHT milk firm is not an exception. Therefore, the China administration needs to determine the organization’s actual cost before they impose duties.
Quotas
A quota is a trade barrier that limits the quantity that a company can import into a country. It is a restriction that allows exporters to collect supplementary income, thus increasing their trade revenues. The tariff rate quotas limit China’s imports to regulate foreign companies’ profits into its markets. Such limitations will significantly impact the company’s supply chain system since it will not satisfy the demand rate (Rolland, 2017). However, through significant investments in the advertisement, the company will gain a substantial market share, thus increasing its profitability.
Voluntary Trade Limitations
They are contracts between the importing and exporting nations that regulate the volume organizations can export within a specific period. Despite the title of the agreement speculating that it is voluntary, the contract is usually fixed. By reducing the volume of products exported, the producing nation can inflate prices and total revenue. China has, however, set policies that regulate the pricing of foreign products, thus impacting profitability (Rolland, 2017). However, the Iceland Foods company can focus on practising economies of scale where the company retails significant volumes of quality milk at a lower price than the local industries. They enable the company to attract a substantial market share and boost its profitability.
Business Opportunities and Uncertainties Created by Trade Policies of China
Trade Facilitation
The Chinese government has introduced a series of adjustments to make customs procedures more streamlined and efficient for exports and imports. For instance, in 2006, the state’s administration introduced an e-port program, an electronic platform that operates as a single initiative across its thirteen major ports (Caldara et al., 2020). Iceland Foods company can utilize the opportunity to fasten its distribution channel as it can file online custom declarations and make payments in foreign exchange of duties. The move will see the company reduce the time taken during the clearance of products at customs offices, thus ensuring timely delivery of goods to its consumers. Furthermore, the implementation of paperless trade clearance covering imports and exports through air, sea, and land will further ensure a smooth distribution of products, thus saving more time than was initially spent on paper business clearance (Caldara et al., 2020). However, the inconsistent and inefficient factors such as custom process varying from port to port, exclusive charged costs and lengthy clearance periods still impact the supply chain of most foreign companies and Iceland Foods company is not an exception.
Tariffs
Since China’s integration into the World Trade Organization (WTO), it applied Most-Favored-Nation (MFN) tariff rates have been almost similar to its bound charges. The Chinese government bonds 100 per cent of its rates ranging from 0-65 per cent for agricultural goods and 0-50 per cent for non-agricultural commodities (Caldara et al., 2020). However, the tariff has continuously declined for agricultural products over the years, thus presenting Iceland Foods’ operations opportunities. The change has indicated a significant achievement of imports liberalization during the last fifteen years since the economy joined the WTO (Caldara et al., 2020). Consequently, the retail company can utilize the opportunity by importing large volumes of its products to the Asian country, thus ensuring a strong supply chain system to satisfy the growing target market.
Meanwhile, China’s general tariff is a negative escalation between semi-processed and unrefined goods and intensification among semi and fully processed products. Therefore, imports of semi-refined commodities will face lower tax regulations than raw materials and fully managed goods. Iceland Foods company is, therefore, compelled to invest more capital in setting up plants to help in the packaging of goods before they are introduced to the markets (Caldara et al., 2020). The move will see the company spending more money on setting up its operations in an already competitive marketplace. Moreover, some agricultural products such as milk and dairy products are levied high tariffs in China, thus posing a significant challenge for distributing UHT products to the market (Caldara et al., 2020). Despite presenting opportunities for its growth, the tariff rates will significantly present challenges in Iceland Food’s supply chain sector through product import volume regulation.
Non-tariff Barriers
China has clustered its imports into categories such as prohibited, restricted and permitted goods. However, most imported products are categorized as permitted commodities and are subject to regular licenses to manage their capacities for statistical determinations. The policy presents Iceland Foods company an opportunity since their UHT dairy products will enter the Chinese markets with limited restrictions (Caldara et al., 2020). However, the rule presents uncertainties as the Chinese government regulates the volume of commodities imported. Thus it will be difficult to satisfy the growing demand for the product. Moreover, the regulation on product capacity will lead to the spoilage of excess goods stuck at the warehouses, leading to losses.
Additionally, the Chinese trade sector conducts commerce remedy investigations such as countervailing, safeguard measures and anti-dumping to maintain fair, competitive surroundings and regular business order. The policy presents a growth opportunity since the Iceland Foods company will have a fairground to compete with domestic and foreign dairy product retailers effectively. The increase in the anti-dumping duty orders will significantly affect the firm’s operations since the Asian economy does not have procedural regulation on expiry reviews (Caldara et al., 2020). Consequently, some retail outlets may be selling expired milk products to consumers, thus tarnishing the company’s reputation. However, the firm can utilize the policy’s opportunity to expand its operations within the Chinese market while managing the uncertainties through regular inspection of its UHT products sold by its local distributors.
Export Restraints
The Chinese administration may restrict the exportation of any locally manufactured goods to sustain its public morality and national security, organize export commerce supervision, protect the environment, and safeguard the exhaustible natural resources of limited supply. The government has achieved much by introducing and implementing export licensing, quotas, and duties (Caldara et al., 2020). Consequently, the policy has instigated the deep connection between the domestic dairy companies and the consumers, making it difficult for Iceland Foods company to compete successfully within the dairy products retail market. Export restrictions have also influenced consumer preference as the customers tend to be loyal to their local brands than foreign brands. However, the Chinese administration’s recent move to remove their dairy products export restrictions has created a fair market environment for local and foreign companies (Caldara et al., 2020). The decision has also influenced consumer preference as most customers are now shifting to foreign products, thus presenting a significant market share for UHT dairy products.
Benefits of Corporate Social Responsibility
Enhanced Public Image
Improved brand appearance is essential as customers evaluate a company’s public image when deciding whether to purchase from a specific organization. Since Iceland Foods Limited has a strong trademark image in its current market in the United Kingdom, it can use this opening to attract consumers to the Chinese marketplace (Eriandani and Wijaya, 2021). Furthermore, the already existing public image will help it gain market share in the economy as consumers will build trust in the company for being the leading retailer of children’s milk and dairy products. Therefore, the company’s managers can develop the organization’s image in China by encouraging its staff to volunteer at charity work, thus showing that it is devoted to helping others. Consequently, the dairy product manufacturer will appear more favourable to customers.
Increased Trademark Recognition and Awareness
Companies that are dedicated to ethical practices are usually regarded highly within the marketplaces. Numerous consumers will, therefore, hear about the company, thus enhancing its brand awareness. As a successful local company in the retail industry, Iceland Foods company has achieved such milestones through strong ethical policies encouraged amongst its employees (Eriandani and Wijaya, 2021). Therefore, the image will help the company gain a market share within the Chinese market despite the competitive nature of industries within the economy.
Advantage Over Competitors
By embracing Corporate Social Responsibility, an organization is recognized as an institute devoted to moving one step ahead by considering commerce’s environmental and social aspects. The move allows companies to stand out amongst their competitors despite a market being highly modest (Eriandani and Wijaya, 2021). Therefore, Iceland Foods should encourage its employees to accept and practice CSR to remain competitive in the Chinese market, which is dominated by other dairy industry giants such as Modern Dairy.
Cost Savings
Changes in company operations to favour sustainability, such as using less packaging, will decrease manufacturing costs. The Iceland Foods company can be a leading milk supplier in China by reducing its UHT products packaging to limit the extra charges incurred during production (Eriandani and Wijaya, 2021). Consequently, the firm will save more finances, thus increasing its general income.
Improve Consumer Engagement
Companies that use sustainable channels, such as Iceland Foods company should market them on social media by using kids as brand ambassadors and other mass broadcasting platforms to attract consumers within the Chinese market. Consequently, customers will follow the promotions and engage with the trademark and its operation, thus developing a consumer-employee relationship (Eriandani and Wijaya, 2021). The engagement will attract consumers will further encourage the retaining of loyal clients while also attracting new markets.
Increased Employee Benefits
When companies embrace CSR, various benefits are presented to their employees. For instance, there will be a more positive and productive work environment when managers promote activities like volunteering (Eriandani and Wijaya, 2021). Such actions will encourage professional and personal growth amongst the staff. Therefore, Iceland Foods company should focus on building its Corporate Social Responsibilities as it will help it build a cohesive work environment amidst the turbulence experienced by workers in the Chinese trade industries.
Enhanced Staff Engagement
Like consumer commitment, Iceland Foods firm managers need to ensure their staff understands its CSR approaches. Research indicates that workers tend to be more productive when working for organizations with a good public impression (Eriandani and Wijaya, 2021). Moreover, showing that the firm is devoted to human rights, it is more likely to attract and retain the top workers within the Chinese economies, thus increasing its market value in the competitive marketplace.
Cultural Factors of Conducting Business in China
Confucianism
The aspects of Confucianism impact business operations since it assumes all relationships are equal. Also, it stipulates that it is vital to show respect to educational background, age and seniority (Zhao et al., 2018). The management method under this aspect is inclined towards the directive administration, which reflects the primary Confucian concept of the hierarchical nature of the Chinese community (Zhao et al., 2018). Therefore, the company manager is considered a kind of father-figure who gets loyalty and respect from staff. In return, the administrator is anticipated to take an interest in all positions of the worker’s life.
Face
The aspect of “Face” is a vital purpose of business interaction, a combination of pride, public reputation, and dignity. Therefore, a little mistake can make the Chinese lose “Face,” which can offend both the consumers and the state government. Giving face, however, can be done by showing respect to consumers, giving compliments to individuals and engaging in activities that boost self-importance (Zhao et al., 2018). If the theory is done in a well-mannered way, it enables a person to gain respect, loyalty and a positive phase of commerce mediation. Conversely, the “saving face” concept refers to sustaining a good brand image and can be achieved by helping a consumer avoid embarrassing situations. Thus, the consumer will be indebted to the company leading to their loyalty towards the trademark.
Collectivism
Chinese culture is generally collectivist oriented, and its values and honours clusters rather than individuals. Consequently, there is a tighter channel, more respect, group decision-making, extended information sharing. Most individuals feel obligated to incorporate partners in the vital decision despite being certain of the results (Zhao et al., 2018). Benefits and faults are also spread among all colleagues of the team. However, although the Chinese are supportive within their clusters, companies often parade a competitive alignment with rival enterprises.
Greetings and Meetings
When meeting business partners in China, foreigners should parade respect and sincerity. Handshaking should be lightly followed by exchanging business contacts, specifically with Chinese text on one side and English (Zhao et al., 2018). Also, the meetings are conducted for relationship building and moving it forward rather than particular commerce tasks. The Chinese do not like to be hurried and interested in long-lasting commitment. Therefore, Iceland Foods firm should understand the various cultural concepts of conducting business within the Asian economy, realize productivity and improve market share.
Expansion Methods
Global Strategy
The local corporation depends on a low-cost framework and offers goods and services to the selected foreign marketplace where they have expertise. It ensures the target markets are critically selected based on the economic evaluation before introducing its products (Durand et al., 2017). Therefore, a standardized commodity or service is presented to the selected nations globally.
International Strategy
The firm implements the approach to establish its worth by presenting goods and services to the foreign marketplaces where such products are absent. Administrators can achieve the approach by practising strict management of operations in the new markets and providing the standardized commodities with slight or zero differentiation.
Transnational Strategy
Under this approach, organizations implement a combined strategy of global and multi-domestic tactics. The companies depend on both domestic responsiveness and low-cost frameworks (Durand et al., 2017). Consequently, a business offers its standardized merchandises and services and certifies that it aligns with the domestic settings fundamental in the market where it is presently trading.
Multi-domestic Strategy
Under this approach, the multi-domestic corporation presents the customized goods and services similar to the conditions operating in the overseas marketplaces (Durand et al., 2017). Conversely, the approach tends to be exclusive because R&D, promoting, and production are to be conducted according to the domestic conditions existing in different markets.
Expansion Strategies Selected by Iceland Foods Limited
Considering that the company operates in a foreign market, its administration has invested in adopting and implementing global and international strategies. The firm has successfully integrated the two approaches into its operations, thus ensuring it has tight control of its operations in China by implementing an international approach (Durand et al., 2017). Conversely, the transnational plan will enable the company to conduct smooth operations within the turbulent and competitive Chinese market, thus increasing its productivity and market share.
Conclusion
The study’s main purpose was to analyze and identify the Iceland Foods company’s strategic practices to ensure successful integration and incorporation into the Chinese market. Despite China being a relatively uncertain market and competitive market, the retail company’s managers should further assess the Asian marketplace to ensure it remains profitable over a significant period. The business should further examine barriers such as tariffs, government policies, and customs charges of the economy to ensure they do not impact its operation. Furthermore, the company managers should focus on advertisements through brand ambassadors and social media platforms to enhance its dairy industry presence.
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