Case Study: Levendary Café's Entry Into The Chinese Market

Factors favouring Levendary Café's entry into China

Discuss about a Case Study for International Business of lavendary cafe?

1. Levendary Café entered the Chinese market in a wholly-owned foreign and opportunistic approach. By entering as a wholly-owned foreign business, the Café looked forward to being in a position to retain control of most activities such as the brand image, capability to monitor store operations, and financial reporting practices. This method of entrance into the Chinese market posted several roadblocks. However, it was a tradeoff that the café accepted in the effort to attain full control in guiding its direction in China. Levendary Café could also have opted for a strategic alliance, joint venture, or partaking in an acquisition as alternatives to the wholly-owned enterprise (Kluyver, 2010, p. 107). However, such choices could have led to the café not retaining complete control over its operations.

While evaluating the viability of Levendary’s entry into China, a few factors have to be discussed. At the time of entry into China, the nation had a population of 1.4 billion with an average 14.5% yearly growth (GDP) in the past ten years. GDP serves as a point of reference to many prospective entrepreneurs in their decision making (Cavusgil, Knight, Riesenberger, Rammal, 2014, p. 6). The nation’s demographical emerging trends were also promising. The nation’s urban population had risen by 10.4% of the nation’s total population from 2000 to 2009. Also, the country had a resilient middle class bearing a per capita earnings of roughly RMB 6,282 to RMB 17,175 considering that in at that time, RMB 1 was equivalent to USD 0.15. Moreover, China had a rising lifestyle inclination to eat out, a large escalation in the number of women in the labor force, and an affluent middle class promoted the advancement of the country’s food services industry. Levendary Café’s biggest American competitors such as KFC, McDonald’s, and Pizza Hut had also successfully entered China using vastly different approaches (Bartlett, Ghoshal, 2002, P. 7). These conditions affirmed the viability and an advantage for Levendary Café’s venture into China. However, the viability also had its disadvantages as the market also attracted other competitors in the industry.

Levendary Café’s entry to China was characterized by an urge to blend operations and concepts. Upon entering China, Leventhal had given Chen full control although a transparent tactic and a well-laid out plan and strict rules on standardization and how to implement the plan was in place. Louis was a viable manager based on his experience and connection with various stakeholders in China. Chen was also asked to develop a strong market position to allow franchising by requiring him to “do right by the concept.” However, Chen’s operations were hardly managed as Leventhal managed him with a light touch. Levendary Café’s in China were to be run by strict rules approved by the concept group, allowing modification concerning the ‘look and feel’ of the enterprise.

These measures were to help in adapting resources and expertise to the Chinese stores enabling the Café to connect with Chinese youths guaranteeing its future. However, the enterprise in China is running under an entirely different model compared to that in America. Chen aspired the enterprise to adapt to the evolving tastes of the Chinese in various areas. Chen also lacks a clear strategy for growth. The complete diversion from normal operations is attributable to lack of proper communication and lack of control by the headquarters’ management for the past 18 months in which Chen operated without reference to US management.

Challenges faced by Levendary Café in China

The café’s headquarter had to acknowledge the extreme differences in culture between China and US. Chinese consumers differed from those in the US in food preferences and habits. Chen was smart enough to recognize this difference by being flexible and customizing the food Chinese’s Levendray cafés offered to the closed community. However, this flexibility was disadvantageous as it was killing Levendary’s identity turning it to a whole different café in the attempt to adapt to the new culture. The café should have used its competitive advantage of serving its legendary organic fresh foods as a strength since most Chinese consumers prefer fresh food.

Also, Chen should have focused on the personalized services that labeled Levendary as a source of competitive as Chinese restaurants lacked such services. Levendary was disadvantaged in that it lacked international experience. They ought to familiarize with operations and problems associated with international ventures to gain a strong position in the market. Finally, Levendary was disadvantaged by the lack of control over financial reports in China that do not follow identical, standardized, and accepted reporting principles. Louis had no excuse failing to adhere to GAAP in financial reporting; this matter required immediate correction to guarantee the Café’s accomplishment.

Chen was inclined to obtaining the highest profits as possible while sacrificing Levendary’s image. To be successful, the enterprise cannot only standardize its products, pricing, distribution, and promotion of the franchise as it must adapt to the extreme and promising markets, China offers.

2. Mia Foster should strive for change. One change is that she should seek to work with care, patience, and as a team with Chen. This is advantageous as it will reduce friction between Chen and her, and help them develop better solutions and a strategic plan for expanding the enterprise in China without conflict (Ghemawat, 2010, p. 222). She ought to work with Chen to understand the new market better, and try to seek an understanding of why Chen made such decisions for the 23 franchises in different regions of China. Mia should also conduct her research on the differences in food culture between the Chinese and Americans, food tastes in different parts of China, café atmospheres suited to different locations in China, and slogans used by Levendary that could not appeal to Chinese cultural values. She should also research on adjustments that were made for the enterprise to grow and on the potential needs to be met for the Café’s successful expansion. Conducting such research would help her be in a better position to discuss her opinion with Chen before making decisions to avoid conflict with him. Such an endeavor would help in averting conflicts with the process, the problem, and stakeholders Contractor, 2011, p.233).

Mia should then try to make Chen appreciate that standardization is achievable and relevant. After establishing a conducive relationship with Chen, she should focus on changes in the headquarters. First, she should work to ensure that the enterprise adapts to the Chinese society. This would help in adjusting operations to the Chinese and foster success. To adapt to change may call for changes in the management style, pricing, café offerings, promotion, café locations, and the café’s atmosphere.

Secondly, Mia should enact changes to financial reporting procedures. To ensure proper reporting, she should strive to establish a Chinese headquarter to take care of financial records prepared in Chinese format and then reports to the US headquarter. This would be significant in avoiding conflict and complications between the management for both sides. Also, it would help the enterprise to conform to the financial reporting standards in China hence avoiding confrontation with the law.

Mia should also ensure that the business is flexible. Flexibility of businesses is influenced by systems, internal forces, and enterprise structures augmenting the reaction of the business to various markets (Inkpen, Ramaswamy, 2006, p.373). Under flexibility, the restaurant should retain its design in consistency with US franchise models. However, the restaurants could vary in size to suit the various locations. Such a change would permit the franchise to grow. Finally, Mia should urge management to acquire more Chinese contacts. These contacts could include partnerships that could help in negotiations with companies, stakeholders, and individuals in China to enable the creation of an organizational structure incorporating the Chinese and American cultures promoting success in both nations. Such partnerships will guarantee the growth of the Levendary franchise.

The enterprise’s vision should be changed to incorporate an International look by ensuring a balance of localization’s benefits with the economies of standardization, few changes in management styles, and enacting a McDonald’s style food menu design for its Chinese franchises. However, the quality and the Levendary brand must be retained for the business’s success.

3. Mia requires taking a definite course of action to ensure she is capable of dealing with growth in China. The two cultures lack a link that the headquarters is not understanding. The hierarchical structure in the USA takes a top-down approach whereas that in China takes a bottom-up approach. To adapt to the Chinese culture and market, the firm requires several actions. The enterprise should train its employees on the Chinese market and Culture. The firm should also enact effective procedures that facilitate the generation of services and products that meet the expectations and requirements of its customers. The Firm should then increase its inventory specifically in China, increase franchising, and focusing on other cities as expansion opportunities.

Foster should then conduct numerous research through methods such as opinions on sales, claims, and feedback from customers, group interviews, and surveys. Finally, Mia needs to steer the enterprise towards adopting change. This act should be followed by a cultivation of confidence and friendship for business with all stakeholders. The company should also make substantial, lasting agreements with various Chinese contacts to develop services and products that meet the customer’s expectations. Mia should also ensure that intercultural relations are maintained. The recommended course of action she should take consists of two stages.

First, Mia should ensure the firm follows KFC’s and other American competitor’s approach to the market. She should then encourage, recognizing, motivating, and training. Transparency should then be prioritized by setting up necessary properties (Lewis, 2000, p.6). Mia should then build a team for Louis, and try to make him understand the core values running Levendary café. Foster should then renovate the existing layout of the Chinese stores. The second stage should entail calling for more investment from the US. For the final action, Foster should have more control on Louis.

In conclusion, adhering to the proposed strategy would ensure Foster’s confidentiality in handling Chinese stores, and enable her to develop a workable marketing plan that satisfies everyone (Wall Street, Foster, and herself) (Volberda, 2011, p. 222). Such an approach would ensure success and better trade-offs for the Levendary Cafés in China.  

Reference

Bartlett, C. A., & Ghoshal, S. (2002). Managing across borders: The transnational solution. Boston: Harvard Business School Press.

Contractor, F. J. (2011). Global outsourcing and offshoring: An integrated approach to theory and corporate strategy. Cambridge: Cambridge University Press.

Cavusgil, S. T., Knight, G. A., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business: The new realities.

Ghemawat, P. (2010). Redefining global strategy: Crossing borders in a world where differences still matter. Boston: Harvard Business School Press.

Inkpen, A. C., & Ramaswamy, K. (2006). Global strategy: Creating and sustaining advantage across borders. New York: Oxford University Press.

Kluyver, C. D. (2010). Fundamentals of global strategy: A business model approach. New York, NY: Business Expert Press.

Lewis, R. D. (2000). When cultures collide: Managing successfully across cultures. London: Brealey Publishing.

Volberda, H. W. (2011). Strategic management: Competitiveness and globalization: Concepts and cases. Australia: South-Western Cengage Learning