Levendary Café is a US firm, operating a chain of cafes in the US. Levendary Café was established in Colorado but later expanded to other cities with phenomenal growth. Levendary Café is known in the industry for its ability to adapt to changing tastes and, hence, providing customers with new products and services. Similarly, the cafe is known to take risks, which distinguished from the rest of the industry. This can be substantiated from the recent change in the company’s policy, which made it mandatory for the restaurants to use organic grains in bread and hormone-free naturally raised meats. In most cases, the risk paid off as the customers were willing to pay the premium price resulting in an increase in revenue for the company as well boost in the customer’s trust.
Levendary Café was founded by Howard Leventhal on the philosophy that customer’s satisfaction and delight comes before the profits. He advocated that a satisfied customer base will always translate in continuous revenue and high profits for the firm. This philosophy penetrated in every dimension of the organization and manifested in routine personalization on the request of the customers. As a result, Levendary Café was quite popular in the upper segment of the society. The customer base of the cafe consisted of white collar professionals and upper class women. Due to the nature of the customer base, Levendary Café was able to charge premium rates from the customers. In addition to this, Levendary Café was also known in the industry for providing localized food menu. This meant that Levendary adapted to the local food cuisine unlike the competitors, which were known for providing standardized services throughout the country. The menu variation was appreciated but, at the same time, posed great challenges for the operations and marketing team. Similarly, in order to keep the brand fresh in the eyes of the customers, the cafe constantly evolved menu choice, which also increases the brand equity of the cafe in the eyes of the customers.
After achieving considerable success in the US, Levendary Café decided to conduct international expansion in order to increase the company’s profit and to geographically diversify the risks. Despite the challenges, Levendary Café decided to enter the Chinese market, and the responsibility of such effort was put on the shoulders of Louis Chen. Under Chen, Levendary Café opened its first restaurant in Shanghai. The reason to select such location was hidden in the fact that Shanghai had large expatriate population, which would welcome the beginning of an international restaurant. The risk taken by Levendary Café paid off as the new restaurant was an instant success as the white collar employees present in Shanghai’s financial sector welcomed the addition of American restaurant in their neighbourhood. Following the success of Shanghai, Levendary Café expanded and within a short span of time opened 23 branches across China. This made the cafe a leading multinational restaurant in China along with McDonald and KFC.
Despite the success achieved by Levendary, it faced numerous challenges. The most important challenge existed in the shape of strategic decision of whether to adopt localized menu or not. By providing localizing menu, Levendary Café will be replicating the strategy, which made it successful in the US market. However, Chinese market was considerably different from the US market and had completely different dynamics. The Chinese management objected to the decision of the top management to adopt localized menu in China. According to Chinese management, this strategy will not be successful in China and continuation of standardized menu will keep the company’s growth on track. Moreover, the adoption of localized menu could endanger the growth of the restaurant in China (Bartlett & Han, 2011).
The case of Levendary Café clearly exhibits different challenges, which are posed to an international firm operating in an alien environment. It also shows that a successful strategy in one region may not be successful in another region due to the difference in the dynamics of culture, society and values (Vance, M, & Paik, 2010). The case provides an opportunity to conduct research in the context of strategic management. The analysis will provide insight into the strategic analysis of the strategic directions advocated by the two management groups in China. Moreover, it will also allow application of different theoretical models, which will enable assessment of strategy at every operational level.
The case is also ideal in the context of international marketing management. This is due to the fact that US firm is entering in the Chinese market, is bound to face challenges, which are completely different in nature to the challenges faced by the organization in their home market. This clearly underlines the constraints by an international firm in the application of marketing strategy in a foreign market. Moreover, this case will also lead to evaluation of the marketing strategy in respect of segmentation and positioning of the café in the Chinese market. Last of all, the case will also analyse the measures to be taken for effective human resource management and how to devices the strategies to handle this asset.
The case also illustrates the problems faced by an organization on its entry into international business arena. The case of Levendary Café also exemplifies different strategic problems and choices faced by an organization during international expansion. The analysis will also lead to the country analysis, which will allow the evaluation of the attraction of Chinese restaurant market. Similarly, the strategy used by the Levendary Café to overcome entry barriers will also be analysed in order to determine its efficacy in the context of international business.
The primary aim of the research is to find a sustainable and feasible solution for Levendary Café, which will allow the company to consolidate its position in the Chinese market. For this aim, following are key objectives:
- To assess the argument of each conflicting party in most impartial and practical manner.
- To support the arguments of each party with concrete and clear evidence.
The case will be analyzed in the context of functional areas such as strategic management, marketing management, human capital management and international business. As a result, all of these areas come under the scope and overview of the case analysis. Strategic management of Levendary Café will be done in the context of strategic choice of the company regarding its Chinese operations. Moreover, it will include areas such as strategic analysis, strategic preferences and strategic implementation. Marketing management will include the analysis of all the marketing effort conducted by the company in China such as segmentation of the market, product life cycle analysis, etc. The human capital management will include all the efforts made by company in order handle the human resource, capitalizing on the expertise prevailing in the employees and ways to get maximum efficiency out of this asset. Similarly, the international business will incorporate into the analysis all the issues faced by an international company in its entry into Chinese market. This will include country analysis and the strategy to overcome different barriers of entry.
The case is set in 2011 and provides insight into the dilemma faced by Levendary Café regarding its strategy for expansion in China. Levendary Café is a known US firm operating a network of cafes throughout the country. Levendary Café has distinguished itself by offering localized menus, which are designed according to the needs of the local customers. Despite the risk associated with this strategy, Levendary Café was able to achieve considerable success in the market. Levendary Café has positioned itself as an innovative organization, which is not afraid to offer something new to the customers. As part of this strategy, the company introduced used of organic grains and meat in their food outlets.
Levendary Café has been very successful in achieving a strong brand identity in the market. As a result, it is able to cater to the needs of high-end customers, which reward the company by paying premium prices. The strategy of offering localized menu and food items, has allowed the company to differentiate itself from the competitors like McDonald, which is known for offering standardized products in every market. The strategy of using localized menu has also its share of challenges for the company especially its supply chain function. Localized menu means designing and establishment of supply chain, which is unique for every market. This also means additional cost for the company. Despite these inherent constraints faced by the company, Levendary Café has been quite successful in creating a profitable niche for itself in the market.
The main focus of the case is on the company’s decision to enter Chinese market and the subsequent challenges faced by the organization. The case sets out the management conflict, which is faced by the organization in respect of the strategy to penetrate and consolidate the company’s position in the market. Levendary Café selected China due to its strong economic potential and the opportunity of growth available in the Chinese market. The enlargement of affluent urban class has led to the demand of international food chains. As a result, number of international restaurant including Levendary Café decided to enter the market and make use of market’s growth for their benefit. The case illustrates that Chinese market offer considerable challenges (Peng, 2008). The main challenge is from local firms, which have the dominant position in the market. These firms also have considerable influence on the supply chain, which make it difficult for international firms to acquire inputs and supplies. But, the biggest challenge exists in the form of constraints, which inhibits the firm from offering localized menu to the market. Due to this, almost all the firms in the industry offer standardized food menu, which is easy to manage on the operational level. The focus of the case is on the selection of strategic direction by the company after it successfully established itself in the market. Levendary Café started with the establishment of restaurant in Shanghai. The selection of Shanghai was logical because it has large expatriate population with the taste of international cuisine. The success of Shanghai restaurant was followed by the establishment of the number of new restaurants in other localities of China. The success of Levendary Café can be gauged from the fact that it became the most successful international restaurant in China along with McDonald and KFC.
However, this was just the beginning of the management conflict, which put the entire organization at crossroads in terms of their strategic orientation. Now, Levendary Café will have to decide whether to follow the strategy of customization, which it successfully implemented in the US market or to follow the strategy of standardization, which enable it to penetrate the Chinese market (Shy, 2005). The difference in the strategy has divided the organization in two groups. The Chinese management is reluctant to take the risk of offering customized menu and want to continue with standardized menu. Chinese management defends their stance on the basis of supply chain challenges, which will come with the localized menu. Moreover, it will erode the brand, which was carefully crafted in the Chinese consumers. On the other hand, the American management of the cafe wants to offer localized menu in order to replicate the success of US market in China. Now, Levendary Café needs to find a way forward, which not only allow it to overcome this problem but will also secure its future in Chinese market.
Following are the research questions derived from the problem statement:
- What are the reasons behind Levendary Café’s top management’s advocacy of localization strategy in China?
- What are the underlying assumptions behind Café’s Chinese management assertion that Café’s American strategy will fail in China?
- How the marketing strategies will be designed in order to cope with the marketing challenges in the foreign country?
- What is the solution for the present predicament of Levendary’s Cafe?
The analysis of the case is based on the following assumption:
- It assumes that the top management of the company is free to take any strategic decision.
- It assumes that Chinese management of the cafe is dependent on the US management to take the final decision.
- As the case is based on 2011, the analysis assumes that no change has taken place in the economic, political and technological factors since that date.
The key problem is identified by Mia Foster after the share prices started to shrink in the Wall Street. The problem is also spotted in the time when the ownership of the company was being transferred from Haward Leventhal to Mia Foster. This ambiguity was attributed to Mia’s in the ability to manage the Levendary Café’s operation as effectively as Howard Leventhal was doing. Apart from this, there was the decline in the domestic market for Levendary Café’s market, and as mentioned in the case Mia Foster still wanted to tap in to the Chinese market.
Another crucial issue that is being faced by the Levendary Café is due to the Supervisor of China Expansions, Mr. Louis Chen. He seems to be less cooperative, and do not feel happy about reporting to Mia Foster. The more alarming situation for Mia Foster was the difference between the operational methods in United States and China. Previous to that Mia Foster was in the consideration that operation in China would be as similar as they were in United States. However, Louis Chen was in view that the Café will get use to Chinese culture and will be an enormous success. This has created significant difference in the point of views between both the personnel. However, as Mia Foster looks this, she is in the concern that the other fast food chain have operated in China with only certain changes in the menu.
As explained above, the conflict of interest and thinking between both the personnel is playing vital hindrance in the case. Both the personnel had various meeting for the discussion of the current situation of the company. Mia has also made some visits to China to meet Louis Chen. Mia Foster wanted everything to be as similar as of United States operations. However, Louis Chen was in consideration that the strategy should be made related to the market dynamics in China and not to be as similar as of US.
The evolution of computer systems and many researchers involved in various studies, the analysis systems have also been extremely easy. The plan followed for the analysis of various focus points will be based upon qualitative approaches and will be in depth discussed. The plan of action to be followed in this case will be discussed in details in this section. This portion of the write up will cover the brief details of the models and methods to be used for the analysis of case. The provided case study of Levendary Café provides details regarding the problems faced by Levendary Café, its basis for analysis, and background of the company. Adding to this, the case study also provides the quantitative data and the managerial hierarchy of the company to give the holistic view about the situation and the company.
For the purpose of analysis, the complementary data is also taken in to consideration to support the assumptions made for the company. Apart from this, analysis will be done by providing supporting data from the secondary sources. All the additional informational will be taken from official sources and will be quoted accordingly at the end of the chapter. The information taken for the analysis purposes will only be from secondary sources (Aitkin & Longford, 1985 pp. 1-3). Including the primary data for this matter will be overestimated and as for the purpose of academic research by student, gathering primary data become tough and involves high monetary cost. Also, the problem under consideration for this case does not require having primary data conducted. As per the requirement, the rules for the researcher to conduct the study about the cost and benefit derived from the study and for the company. As it is known that Levendary Café is a registered company, so its financial information and economic indicators will also be researched. Moreover, all other social and cultural factors that may affect the success of the Levendary Café will be accessed.
It is clear that the data supposed to be gathered for the purpose of analysis will be from various sources, the effective mix of models will be analyzed. The current situation explained that company does not have any serious financial challenge right now. Therefore, financial data will not be analyzed in great detail. The recent challenges are related to management practices. On the other hand, social and economic situations of China are important to investigate and understand in this research study. The basic problem between two managers is to follow the same strategy of expansion like U.S, or to devise a new strategy according to Chinese market conditions. In order to find out the problem solution, there was need to identify market patterns and factors that other fast food restaurants have considered while getting success here. This will help them find about the effective strategy to be followed in the Chinese markets.
Qualitative data will be used to find out solution of research problem. The nature of problem demands qualitative analysis of data, which will lead to highlight corrective actions. The main reason to use second hand data is the issue at hand, which does not require collection of first hand data from stakeholders. In order to t demonstrate current situation, different models related to business areas like Human Resource Management (HRM), Marketing, and International Business Operations will be applied.
In analysis part, quantitative data will not be used; only major business models will be utilized to illustrate the case in detail (Non, 2012 pp. 8-10). An attempt to collect data from reliable and valid sources has been made in this research. For this purpose, the reliable sources like Emarald, Jstor, Sciencedirect, and Wiley libraries have been used. Also, latest articles haves been reviewed to get updated data related to issue at hand. Most of the articles were selected from year 2000 and later, especially articles published in the year of this case were given high attention. The ideas taken from other sources were cited and referenced properly using Harvard style for connivance.
While concerning to the problem, various theoretical models have been considered and have been selected from various sources and subjects. There have been used different strategic management tools to evaluate company current strategies, and what can be best option to expand operations in China. There has been used Porter’s five forces tool to check attractiveness and competitiveness of Chinese market. Along with these, Balance Scorecard tool will help to highlight companies’ areas which need improvements. SWOT analysis of the Levendary Café will show its strengths to maintain, weaknesses to improve, opportunities to capture, and threats to reduce its effects. In the same way, the five forces will guide to identify the potential of Chinese market in terms of Levendary Café acceptance. It will help to analyze whether it will allow entry or market is also saturated. Porter’s five forces tool is used to analyze how much an industry is favourable for a company. On the other side, balance scorecard helps to check the attractiveness of emerging industries. The different techniques are too followed in order to discuss the strategies used by the company and to find about what should be done in company. Some of them are explained below:
The model will analyze the industry in which the company is currently operating. This model is not specific to any organization. The Porter five forces model will measure and determine the future prospectus. It will provide a guidance path to the company. The factors to be discussed in the model are as follows:
Barriers to Entry:
This force, as defined by Porter covers all the factors that play as vital barriers to entry in a business market. This may include the investment, competition and the cultural and social details of the other country.
Now-a-days, the restraint business is increasing throughout the world so it is also same for China. Many huge firms like KFC and McDonalds have already been operating in China. Due to this, market has been segmented on various preferences and also people are in phase of being loyal customers.
The substitutes of the restaurant business can be directly from our own brand and from the other business. Apart from this, Chinese market still prefers its local food which is the cultural symbols of the nation.
Strength of Suppliers:
The bargaining power of supplier effect the intensity of the competition specially, if there are a huge number of suppliers, less availability of raw material and the cost of switching the supplier is high.
Bargaining Power of Buyers:
Consumers are final users of the product and it is very common in most of the markets that there is certain increase in the restaurant markets throughout the world (Porter, 2008 pp. 86-104).
SWOT analysis or alternately called as SLOT analysis is a strategic planning method to find the Strengths, Weaknesses/Limitations, Opportunities and Threats of a particular organization or the venture. The strengths are the characteristics of the business or the project or the project team which gives an advantage with respect to other players. Weaknesses or the limitations are those factors that place the project or the team in a disadvantage with respect to other players, due to some innate or the unfavourable factors. The opportunities are the external chances or the positive factors that may give a chance for the business to succeed or make huge profits. Threats are the external elements that may hinder the success of the business or lay as the vital hurdle for business to succeed (Helms & Nixon, 2010 pp. 215 - 251).
Major HR management tools have been applied to find whether the employees are motivated towards the task, how human Resource strategies are being conducted, to measure effectiveness of human resources strategies, and to highlight new requirements of the firm in new expansion plan. Moreover, an analysis for GAP has been conducted to analyze all the additional requirements regarding the human resource of the organization. Also, different strategic HR models have been applied to understand the Levendary Café HR strategies with respect to its goals and objectives. Some of them are defined below:
In balance scorecard model, the available data and information will be divided into three different levels. These levels or categories can be listed as customer, internal processes, learning and growth. The data have been categories with the objective to check attractiveness to expand the business of Levendary Café in China. The objectives have been set that company should focus to achieve. An appropriate action plan and measures should be taken by Levendary café to meet these objectives (Leu, Hanser & Knick, 2007 pp. 2-7).
These tools are used analyze the appropriateness of human resource plan in a company. HR planning and GAP analysis also help to formulated future strategies and suggest further improvement in HR department. These models will be used to get a detailed view of Levendary Café HR matters in China.
The strategic human resource model will cover the following aspects: Environmental Analysis, Organizational Mission and Goal Analysis, Analysis of Organizational Strengths and Culture, Analysis of Organizational Strategies, and Choice and Implementation of Human Resource Strategies.
Marketing management models, such as segmentation, PESTEL Model (Political, Economic, Social, Technological, Environmental, and Legal), international market entry strategies and Factors influencing consumer buyer behaviour will be utilized to find the perfect mix of the marketing mix. This will benefit in meeting the strategic goals of Levendary Café and will help them achieve competitive advantage in the Chinese market (Butler, 2006 pp. 4-12).
This model of strategic analysis covers the framework of macro-environmental analysis in order to get a fair idea of political, Economic, Social, Technological, Environmental and Legal aspects of going for international strategy. This model will be used as a marketing management tool to find perfect strategic match for the expansion of Levendary café in China.
The decision of how to enter in a foreign market can highly impact the critical success factor of the business. The expansion in the foreign market can be achieved through below mentioned strategies: Exporting, Licensing, Joint venture and direct investment. For the purpose of this case study, we are concerned about the direct investment (Quickmba, 2010). International Business tools were applied to analyze company expansion from different prospective. The main focus was to investigate Chinese restaurant industry from entry point of view. It has guided to check attractiveness for Levendary Café entry. Chinese restaurant industry performance was analyzed to get deep idea about the at hand. Country analysis and Porter’s Diamond model were used to investigate different controllable and uncontrollable factors for Levendary Café. Moreover, a descriptive analysis for expansion in China will be discussed through the addition of Foreign Market Entry Modes. This will particularly talk about Levendary Café’s expected investment. The analysis will be carried out are as follows:
It has been noticed that restaurant business in China is getting success for last many years because of good economy growth. This success has led people towards more urbanization, and their purchasing power also has increased to spend over food. The few viewpoints in this will be discussed Strong Economic Growth, Rapid Urbanization and Increasing Disposable Income, Changing Lifestyles and Consumption Patterns.
In this model, a company can have an idea about an organization growth in the light of industry and economical related factors. These conditions are as follows:
- Different Factor Conditions
- Different Demand Conditions
- Supporting and Related Industries
- Company Structure, Strategy, and Rivalry
The different models explained in this chapter are going to help us do the analysis of industry, and analyze the position of Levendary Café in the industry. The application of different business models and tools have helped a lot to understand what best strategy can be to enter in Chinese market, how they can get success, and which factors can affect its growth and expansion. Along with these business models, a qualitative analysis of Chinese socio cultural and economic factors has been conducted. An understanding of economical and cultural factors supported a lot in applying different business models to analyze the Levendary Café situation. On the basis of these models findings, it became easy to suggest different alternatives to handle current issue at Levendary Café.
The analysis has been conducted by applying different models from different genres of marketing and management. The genres chosen for the analysis are marketing management, international business, strategic management and human resource management. The purpose of using different models is to analyze the problems faced by Levendary café from all angles, and propose a solution that would be strategically appropriate from all aspects. Each of the models has been ordered in such a way, which would help in building an integrated analysis of the problem.
The strategic management models help in the analysis of strategic positions of an organization. It also helps in understanding where the organization is lacking in strategic aspect, and where there is a need to integrate strategy with processes in other department. The purpose of using strategic models for this case study is to analyze the effectiveness of current strategies employees by Levendary Café and to find out the appropriate strategies for Chinese expansion of the restaurant. The main debate in this case study is to analyze whether it is appropriate for Levendary Café to pursue similar strategies and processes as it is employing in United States, or go for different ones in China. The models used from strategic management are Porter’s five forces analysis, SWOT analysis and balanced score card analysis. The purpose of using more than one model is to look at the problem and solution from all sides.
Porter’s five forces model is used to analyze an industry for its competitiveness and attractiveness. The purpose of using this model in this case study is to analyze the attractiveness of the Chinese restaurant industry for Levendary Café. Levendary Café has sufficient experience in the restaurant industry of United States. The drastic cultural difference in China and United States make it a challenge for Levendary Café to operate just as successfully in the new restaurant industry. The porter’s five forces model can help in the analysis by explaining the factors that affect the success of any organization in Chinese restaurant industry.
22.214.171.124 Barriers to Entry
Barriers to entry are factors that act as a hurdle for any organization in the start-up process. The barriers to entry encompass factors like competition, heavy set up costs or stringent laws and regulations from the Government of the chosen country. The barriers to entry identified in Chinese restaurant industry are complicated laws and regulations from the country. China collects taxes at almost every commodity, and it forms a remarkable part in the revenue of the country. Moreover, the laws and legislations of the company are also very complicated, and it is a challenge for any new organization to progress at a rapid rate while complying with all the stringent rules. However, China makes it easier for new investors in the restaurant industry by providing sufficient finances to the investors. This is a huge factor in lowering the barriers to entry in any restaurant industry, because heavy set up costs is a barrier for any investor. It takes a huge amount to set up a new organization, and this problem is minimized to a large extent if sufficient finances are available to investors.
Social factors can also act as a barrier to entry for an organization. Some nations are diverse in their food preferences and adapt to new flavours readily. People with diverse tastes are those who love to experiment with their taste buds, and it is much easier for new restaurants to attract a large base of customers in such countries. The people in China are still inclined towards traditional Chinese food and do not switch to foreign foods readily. Research has shown that several Chinese still prefer to have rice in their meals on a daily basis. Several restaurants in the past have failed in China because they could not attract a sufficient size of customer base. However, a positive social factor to be considered by Levendary Café for Chinese restaurant industry is the increasing trend towards eating out. There are several trends such as economic growth, increasing purchasing power, improving disposable income, changing lifestyles, and preferences that are leading to an increase in the number of people dining out of home.
Competition is also a barrier to entry in the Chinese restaurant industry. The restaurant industry is growing at a fast pace since 2004, and the Government of China is taking measures to attract even more investors, because the industry is a remarkable contributor in the growth of GDP. The increasing number of investors is also increasing the intensity in competitions and price wars. The restaurants offering Chinese food are great in number, which is a barrier. On the other hand, it is difficult to make Chinese people accept foreign tastes. In a nutshell, it can be said that the Chinese restaurant industry has medium barriers to entry. Social factors are the main challenge in the whole scenario.
The competition in Chinese restaurant industry is high for Chinese restaurants, because the majority of the restaurants offer Chinese food due to the greater inclination of consumers towards Chinese food. The Chinese restaurant industry is under a boom, and increasing numbers of investors are coming in the market to open their restaurants or expand their chains. The increasing number of Chinese restaurants is making it difficult for organizations to attract customers, retain old customers and establish a wide consumer base. However, foreign foods are still a novelty in Chinese restaurant industry. The competition posed to restaurants is direct as well as indirect. Direct competition is posed by restaurants offering similar types of food, whereas indirect competition is posed by restaurants that offer different foods. Stores that have frozen food or fresh food for take away also pose indirect competition to the restaurants.
The substitutes are uncountable in the Chinese restaurant industry. The substitutes can be derived from the overall food industry. Direct substitutes are restaurant chains, whereas indirect substitutes can be anything such as sandwiches, frozen food or any portable food item purchased from stores. Fruits and vegetables can also be considered as indirect substitutes for restaurant food service. The restaurants range from big restaurant chains to small level restaurants and they all act as substitutes against each other.
126.96.36.199 Strength of Suppliers
The strength of suppliers for restaurants varies in Chinese restaurants industry. The number of restaurants supplying Chinese food in China is huge in numbers, and thus it also means that supply for Chinese food raw material is easily available. Moreover, the customer base for suppliers of Chinese food raw material is wide, which gives them more negotiating power. It can be said that the strength of suppliers for Chinese raw material supply is high. On the other hand, the number of restaurants supplying foreign food is much less in comparison. It would be hard to find suppliers, and the strength of the suppliers would be low. The suppliers cannot negotiate much, because they do not have a large customer base.
188.8.131.52 Bargaining Power of Buyers
The buyers have low bargaining power because if they negotiate the price too much, the supplier would choose another customer for business. This is especially true for buyers who have Chinese food in their menus. However, the case for restaurants providing foreign food is slightly different.
Levendary Café has been in business for several years, and it has a strong brand image in the United States market. People are aware that Levendary café always provides the best to its customers, and they accept any changes made by the organization easily. The customers in United States are loyal, and Levendary Café runs 3500 outlets successfully.
Louis Chen and Mia Foster have been unable to communicate effectively, ever since Foster came in power. Foster tried to get Louis on good terms, but always received negative response because Chen thought that Foster was too ignorant towards the Chinese environment. The whole scenario shows that there is a lack of effective communication between the members of the organization in China and United States.
The economy of China is growing at 7.9%, and the lifestyles of the people are changing rapidly. The people are moving from agricultural to urbanized lifestyles. Women are working, and children are living independently. All these factors are contributing in the increasing trend of people on spending outdoors. It is an opportunity for Levendary Café to identify the upcoming industrializing cities in China, and open more outlets.
The competition is fierce in China; people are unwilling to adopt new flavors, and Wall Street is looking at the Company’s progress to decide if the stock price should be improved or not. The stock price fell for Levendary Café just by the change of CEO, and if the operation in China does not go as successfully as planned, the company might end up in financial crisis.
|Customer Loyalty development
||Generate frequent visits from the customer
||Give promotional incentives to the customers
|Unique positioning of Levendary Café in minds of Chinese consumers
||Development of an effective brand image through pricing and promotions
|Relationship building with customers
||An intangible emotional link between the company and its customers
||Building feedback from the customer, and making changes to make the customer feel special
|Grabbing the opportunities by economy growth in China
||Rapid expansion through opening outlets where there is potential
||Frequent analysis of the areas where a successful outlet can be opened
|Offer a wide variety of tastes
||Make Chinese as well as foreign tastes available to consumers
||Invest in providing diversified tastes to consumers and promoting foreign tastes to introduce them to Chinese customers
|Excellence in Customer Service
||Build healthy relationships with customers
||Attend to customer complaints efficiently and resolve them effectively
||Hire best professionals
||Employee the best, professional chefs to maintain consistency and quality in taste
|Move up the learning curve
||Reduce costs, and improve efficiency with learning
||As Levendary café will learn about how to operate in Chinese environment, it will move up the learning curve, and make production more efficient by reducing its costs
|Improved communication between the members of the organization working in China and U.S
||Implementation of strategies, and technology to enhance flow of communication
||Automating the communication between the organization and its subsidiary. The members will learn to perform strategically as the organization will move up the learning curve
The balanced scorecard analysis has been conducted by dividing the objectives of Levendary Café in three different categories i.e. learning and growth, internal processes and customer. The objectives related to the customer show how much the company will focus its efforts on making the customer happy. The present concept says that for any organization, customer is king. It is important for Levendary café to develop loyalty amongst the Chinese customers, because customer retention is a challenging task in the present environment if customers are not loyal. The competition makes it easy for customers to switch preference, and loyalty is the only way to successfully retain them (Cesyniene, 2008 pp. 5-8). Levendary café also needs to build positive relationships with its customers by allowing them to customize their orders, effective promotions and listening to their feedback. The key is to not only listen to what the customer has to say, but also fulfilling his wishes to make him feel special. Levendary café can differentiate itself from other restaurants in China by focusing on the customer; working on the menu alone will not be successful (Plessis & Beaver, 2008 pp. 4-9).
The organization will have to invest by utilizing its internal resources to deliver the best to its customers. The organization’s internal resources need to be fully utilized to provide the best quality service and food to the customers. China is a rapidly growing economy, and the purchasing power of the people is also growing at a fast rate. The people of China prefer to dine out more than ever before, because of changing life trends (Puig et al., no date pp. 2-9). The changing trends are posing opportunities to Levendary café, and it needs to invest in order to be able to take advantage of them. The country is urbanizing at a rapid rate, and cities are becoming industrialized. Levendary café needs to invest in research to know which cities in China should be the upcoming targets for Levendary Café to open more outlets. Levendary café will also have to use its internal resources to offer a wide variety in its menu to its customers. The consumers in China are more inclined towards traditional Chinese food, and it has been shown through previous restaurant failures that consumers do not switch to new flavours easily. There is a need for Levendary café to make Chinese food available to consumers, as well as tactfully introduce new flavours.
The Chinese food in the menu is important to ensure stability, whereas foreign food is important to give something unique to customers and ensure long term integrity of the organization (Lucca & Andrea, 2010 pp. 4-8). Excellence in service and product are two most essential features of the organization to ensure its stability; otherwise there is no chance that the consumer would come back for another experience from the same restaurant. The investment of internal resources on quality service encompasses hiring of professional chefs, able employees and excellent managers to make sure that the service is delivered flawlessly to the consumer (Czenetr, 2002 pp. 5-8).
The organization also has some learning objectives, which encompass “moving up the learning curve” and “improved communication”. Levendary café and the expansion project is hindered in its progress because of the lack of efficient and effective communication between the members of the organization. The organization has to take its time learning about the new environment, and move up the learning curve to reduce its production costs, and increase its profits. The organization will also have to implement effective communication strategies, and communication aiding technology to improve the flow of communication (Business Fairfield University, 2008 pp. 5-8).
HR planning and GAP analysis has been used for the analysis of Levendary Café’s Human Resource department to assess the effectiveness of the procedures, and identify areas where there is a need for improvement. One of the major problems identified in this case study is the communication gap between the members of the organization placed in China and United States. The conflict between Louis Chen and Mia Foster was also a problem because they failed to convey their respective point of views successfully to each other. Louis Chen thought that the suggestions by the members in Unites States were impractical because they were not familiar with the Chinese environment (Seoul, 2009 pp. 3-7). On the other hand, Mia Foster and other members of the organization in United States thought that Louis Chen was being irrational.
184.108.40.206 Environmental Analysis
The overall environment of the restaurant industry in China is competitive. There are countless restaurants providing Chinese food at big or small level. However, foreign food is not readily available in China. The consumers are more inclines towards Chinese tastes and do not accept new flavours readily. It would be a challenge to make foreign food a success in this environment (Birkbeck, University of London, 2009 pp. 4-7).
220.127.116.11 Organizational Mission and Goal Analysis
The present goal of the organization, according to the case study, is to successfully expand in China. The change of CEO has affected the company by lowering the value of stock in Wall Street. The mission of Mia Foster is to bring the stock value back to its original value, and open more than the current 23 outlets in China (Warner, 2010 pp. 4-9).
18.104.22.168 Analysis of Organizational Strengths and Culture
The organization has a long and successful existence. Levendary café has 3500 outlets, which are running profitably. The long experience and financial stability of the organization are strength for the company. The company follows an autocratic style, and the senior managers of the company control all the decisions (Verdugo, 2007 pp. 4-9).
22.214.171.124 Analysis of Organizational Strategies
The organization is not following a set strategy in China, because Louis Chen believes in taking risks and grabbing opportunities in the rapidly growing environment of China (Kucera, 2007 pp. 4-9).
126.96.36.199 Choice and Implementation of Human Resource Strategies
Levendary Café witnesses “Innovative and Creative” behaviour in its Human Resource department. Such human resource behaviour requires high levels of skills and creativity from the employees.
188.8.131.52 Political or Legal Forces
Tax is a major source of revenue for People’s Republic of China. The taxes are imposed at almost every commodity, and especially at the food commodity. The restaurant industry is rapidly growing in China, and there are extensive taxes imposed at every stage of the supply chain. Moreover, the laws are stringent in China, which makes it impossible for the organization to avert them. There are also several labour laws for the protection of labour in China. Louis Chen was against Mia Foster’s idea to use the same auditors that are used by Levendary café in United States, because he thought that they would have to spend a lot of money and time on dealing with the legal formalities for that purpose. The political stability of China is a positive aspect for Levendary Café, because it won’t disrupt the economy or badly affect the business.
184.108.40.206 Economic Forces
The GDP growth rate of China is as high as 7.9, and the economy is still booming. The restaurant industry is also growing rapidly, and the government is encouraging its growth because it has a large contribution in the growth of the economy.
220.127.116.11 Social Factors
The changing life trends in China are giving rise to an increasing number of people dining out on a frequent basis. People have more money to spend, and less time to cook. However, the people in China are still inclined towards Chinese food. Research has shown that several Chinese prefer to have rice in their meals on a daily basis. It is a challenge for any restaurant to introduce a new taste to the Chinese population.
18.104.22.168 Technological Forces
China is one of those countries that are well paces at developing and adapting technology. This is another favourable factor for Levendary Café because the organization needs technology to smoothen out its communication overseas.
The most remarkable aspects of the country growth in China, which can play a crucial role in success of Levendary café, are as follow:
- China is known for its strong economic growth and is the ideal nation terms of its growth rate. The economy is booming, and it is on its way to becoming the super power of the world.
- China is also going through rapid urbanization due to strong economic growth. The agricultural areas are decreasing, and industrialized cities are emerging rapidly. People are now living in cities more than ever before, and they also have more disposable income.
- The above mentioned factors have also contributed in the changing lifestyle and consumption patterns of China. People are now living in industrialized cities, working in offices, women are working, and young adults are living independently. All these factors, along with increased disposable income, have encouraged the Chinese consumer on eating outdoors.
The following four factors from diamond model will be used to analyze Levendary Café from a broader perspective
- Factor conditions: China’s restaurant industry is in boom since 2004, and there is sufficient capital available. Moreover, the government is encouraging Chinese banks to support investors financially, so they can invest in the restaurant industry. The reason for government’s support is Chinese restaurant industry’s huge contribution in economy growth.
- Demand conditions: The demand conditions are favourable in China, fuelled by the economic growth and changing lifestyles. China also has the ability to provide restaurants with an effective supply chain, so the business can meet high demand with sufficient supply.
- Related and supporting industries: There are huge clusters of Chinese restaurants in China, which is favourable for Levendary café because it would help the organization in building a supply chain rapidly. However, it is a challenge for the organization to build a supply chain for foreign food.
- Firm strategy, structure and rivalry: The organization is working in a haphazard manner in China to keep pace with the fast growing economy. Louis Chen takes the risk, and grabs opportunities as they come his way.
The Chinese economy is under a boom, and the economic growth is giving rise to several factors that are highly favourable for a new restaurant. The purchasing power of people is increasing, and they are more inclined towards dining out. The Government is also encouraging the Chinese restaurant industry to grow, because it is favourable for the overall economy. Such economic factors pose very favourable growth prospects for Levendary Café.
It is very easy for Levendary café to build an effective supply chain for Chinese food, but it also has to go for diversification in its menu. The competition in the Chinese restaurants is very high, and it has to be neutralized by offering different types of tastes. The social factors are a problem for Levendary Café, because there is a risk that consumers would not accept different tastes easily, but that can also be overcome with the help of effective promotional campaigns.
The core problem identified in this case study is “communication gap”, and it can be said that if this singular problem is solved then all the other problems will settle down of their own accord. Mia Foster is the new CEO of the company, and she has to face the huge challenge of China expansion, and drop in stock price of the organization in the beginning of her new career. The problems do not end here; she also has to deal with Louis Chen, who is responsible for the supervision of Chinese expansion. Louis Chen has proved to be an asset for the company and has succeeded in opening 23 outlets in China in a short period of time, but his cooperation and coordination with the new CEO is minimal. The root of the problem is a lack of understanding between Mia Foster and Louis Chen. Louis Chen has been working in the Chinese environment for quite some time, and understands it thoroughly. He has been able to open 23 outlets on the basis of instinct, which is a source of concern for Mia Foster. Foster believes in moving strategically, and using the successful strategic success of United States in China. The two individuals have conflicts of ideas, and fail to convey their idea to each other.
The solution of the problems is based on solving the communication issue between Mia Foster and Louis Chen. Mia Foster is new in the company, and she wants to base the China expansion program on the same strategic process that is followed in United States. She is assuming that the strategic plan that succeeded in one country is bound to succeed in the other country, as well. Louis Chen holds an entirely different viewpoint because he has experienced the Chinese environment, and he thinks Foster is ignorant. Louis Chen has been denying the proposition of Foster or either accepted them scornfully. The issue is that Chen is not working on conveying the concept to Mia Foster. The first measure to be taken is to Mia Foster and Louis Chen to sit together and thoroughly understanding each other’s view point, as well as the position to reach a conclusion that would be mutually consented (Kashefi, 2004 pp. 4-8).
The communication gap needs to be approached, by first preparing a detailed report on the Chinese environment, which would allow the members in United States understand the situation in which Louis Chen is working. Mia Foster should also brief Louis Chen, verbally or in documented form, about the ideas that she has and the reasons she think they should be implemented. The two parties might gauge ideas from each other’s mind while they understand each other’s view point. A mutually beneficial solution can be reached by sitting together and understanding each other (Peterson, 2004 pp. 5-9).
As soon as the first step of developing a thorough understanding of the organization has been completed, the members of the organization should work on implementing a strategic process that would allow all the members of organization in United States and China to be on equal footing. The Chinese environment, according to Louis Chen, is so rapidly changing that it is impossible to follow one rigid strategy. The members in United States should be equally aware of the changes that are taking place in the Chinese environment, and affecting the organization’s expansion (Cornwell, 2004 pp. 3-5).
Louis Chen thinks that the menu should be customized according to the Chinese tastes, because consumers are China are too rigid about their preference towards food. Mia Foster thinks that everything, including the menu, should be the same as it is in United States. Mia Foster wants to copy the same business process to China to such an extent, that she wants the auditors of the United States branches to audit the procedures in China also. Louis Chen is strictly against this idea because it would cost them a very high price, and they would also be stuck with several strict regulations of the country. The detailed analysis of the country has brought us to the conclusion that it would be impossible for Levendary Café to survive in the long run by offering only Chinese food. However, it cannot start off by offering drastically flavours, and there is a need to gradually develop a foreign taste on the tongues of the Chinese consumers. Marketing and promotional incentives are two different tools that Levendary Café will need to apply in the Chinese expansion program, to position themselves uniquely in the minds of the Chinese consumers (Fox, 2005 pp. 7-9).
Mia foster had to face the decline of the stock price right in the beginning of her new career, which is a problem for the organization. This problem can be overcome if Mia Foster starts working on selling herself. Wall Street allowed the stock price to go down because they had doubts about the ability of Mia Foster to manage Levendary Café. Public relations play an important role in any organization for positioning purposes, and Mia Foster should work on it. Moreover, she should also start marketing the organization more aggressively that before. Sponsors can also be employed for this purpose (Warner, 2005 pp. 6-9).
- Mia Foster should start building healthy public relations for the betterment of the organization. Public relations are very crucial for Mia Foster at this stage, because the industry is not sure about her ability to manage Levendary Café. Mia Foster needs to sell herself by working on maintaining better public relations. The whole organization will benefit from this measure, because it will not have to face problems such as decline of stock price. Wall Street may even reverse the damage if Mia Foster succeeds in establishing good public relations.
- Technology should be implemented for the sake of improving the communication in the organization. Most of the problems faced by Levendary Café are due to lack of effective communication between the organizational members in China and United States. The improvement in fluency of communication will save the organization from several risks.
- Mia Foster should not replace Louis Chen with other personnel, and consent to some of his propositions respecting his experience. Louis Chen knows about the Chinese environment in depth, and he has much more experience. Louis Chen has also proved himself to be able by opening 23 outlets in China.
- Chinese food should be accommodated in the menu for the sake of allowing the organization to stabilize in initial stages. However, foreign tastes need to be introduced and promoted for the organization’s survival in the long run. The need for offering Chinese food initially arises due to the company’s need to establish itself, and cover setup costs. However, the restaurant cannot survive in the long run because it would then not be able to survive without being innovative.
- Marketing and promotions should be extensively employed by Levendary Café in China. Levendary Café is a new restaurant in China that needs to establish itself from scratch, and it cannot gain a good customer base without working heavily on promotions. Levendary Café needs to position itself uniquely as compared to other restaurants in order to stay in the industry for a long time.
The Chinese market poses an overall favourable situation for Levendary Café, but there are some hurdles that the organization needs to overcome in order to succeed in this project. Communication gap is by far the most persisting problem in the organization, and the expansions project might fail if it is not solved on an urgent basis. The other crucial problems are the image of Mia Foster, and the reluctance of Chinese consumers to accept new flavours. All these problems can be solved effectively if the appropriate strategies are employed. Recommendations have been provided after a detailed analysis, in order to suggest the company about how it can cover its lacking areas. Different models and strategies have been used to analyze the organization’s success in China from every perspective. The conclusion has been based on this detailed analysis.
The case analysis has some limitations because the information provided for the purpose of analysis was not very vast. The analysis has employed several models and techniques, but it might still be correct to say that the conclusion is insufficient for such major business decisions. There was heavy reliance on limited information, which might be a cause for some erroneous conclusions.
This chapter will discuss the application of learning, extracted from the analysis of Levendary café, on another organization. The organization chosen for application is KFC (Kentucky Fried Chicken). KFC is also a United States based company, which invaded in China several years ago. KFC being a fast food chain had to face challenged very similar to the ones faced by Levendary Café. We will look at how the recommendations and learning gathered through the analysis can be analyzed on KFC, and what can be concluded from it (Berger, Frame & Miller, 2005 pp. 4-8).
The problems highlighted in the case revolve around the communication issue, and the conflict between Mia Foster and Louis Chen about whether the organization should follow the same strategy in China. Mia Foster was adamant that Levendary Café should follow the same business process and strategy that it has been following in the United States, whereas Louis Chen thought that the drastically different environment of China would not be able to accept Levendary Café without localization (Chari, Kehoe & Mcgrattan, 2000 pp. 4-10).
The proposed solution of the problem and recommendations present a hybrid between the viewpoint of Louis Chen and Mia Foster. The solution has been proposed after analyzing the organization, and the Chinese environment to have a clear view of what strategy would be appropriate for Levendary Café. The case was analyzed from different angles by employing techniques and models from strategic management, human resource management and international business. The recommendations emphasize upon enhancing the communication between the members in United States, and China. However, the analysis also showed that it would be more appropriate for Levendary Café to adapt to the Chinese culture in order to survive. The initial stages of any restaurant are tough, because it has to recover its setup costs, and maintain a prominent existence in the industry. The Chinese industry is rapidly growing, and the competition among Chinese restaurants is very high because they are huge in number. The preference of the Chinese consumers is still much inclined towards their traditional food, and they do not accept new tastes readily. However, there are so many Chinese restaurants already in existence that Levendary Café would find it hard to survive if it offers the same food as everybody else in the highly competitive restaurant industry of China (Ireland, 2004 pp. 3-8). As per the recommendations proposed after an extensive analysis of the case study, Levendary Café should rely upon Chinese menu in the beginning to establish itself in the Chinese restaurant industry, but it should develop a foreign taste on the tongues of the Chinese consumers side by side. It would help Levendary Café in maintaining the existence in the long run by positioning itself differently from other restaurants in the industry.
The same findings and learning can be applied to KFC (Kentucky Fried Chicken), under the same scenario. KFC was first started by Harland David Sanders in USA in the year 1952. KFC has been expanding all over the world providing its conventional menu in all countries. It has been happily accepted by all the consumers all over the world, and stands as the second biggest fast food chain after McDonald’s. KFC was first opened in China in 1987, and it has expanded by opening several thousand outlets at a remarkable speed. KFC has kept the Chinese culture in mind, and it operates “Yum!” for offering Chinese cuisine beside traditional KFC menu to the Chinese customers (Bian, 2002 pp. 3-8).
Global companies are always faced with a crucial question when they expand in the new emerging markets i.e. how far should the offerings be localized for consumers in emerging markets? Should the products be adapted to appeal to consumers in the local emerging markets? Should the entire business model be altered for the new market?
The Western approach for foreign expansion has been to effectively sell the core product of the organization similar to the way they are sold in Unites States or Europe. The headquarters is responsible for overseeing the expansion of the organization, and keep a check of the operations. The model often adopted by organizations is to open a few outlets on a trial basis and target the expat community. The first preference of any organization is the employee the same model as in the home country, because it is a whole new hassle to think of a new one. The basic conception is that years of experience and success with one business model can help in the invasion of other countries, as well. Organizations like Domino’s Pizza almost failed in Australia because they did not adapt to the local culture (Takamine, 2006 pp. 5-8).
Nestle is an ideal example of adaptation of local culture in countries, which has been able to manage its countless products as per the taste of different countries. Nestle has localized its products so extensively that it has varied the taste of chocolate, coffee, ice cream and water too. Nestle has empowered its local managers to such an extent, that they can say no to head officers and take decisions that are well suited to the environment of the local country (Zha, 2002 pp. 3-9).
KFC (Kentucky Fried Chicken) learned well from the success and failures of other multinational organizations, and it is currently on its way to becoming another ideal company in terms of expansion. The expansion of KFC in China has been remarkable, which can be well attributed to its ability to adapt to the local culture of China. KFC is expanding rapidly by opening one outlet per day in China and intends to reach 15,000 outlets. KFC has achieved success in China by leaving behind its dominant logic: limited menu, emphasis on takeout and low prices (Keister, 2001 pp. 5-9).
The study of KFC’s China transformation shows several implications that are similar to the learning and findings extracted through the analysis of Levendary Café. The transformation of the business model is the key to success for KFC in China, and the company became a global brand while gained several competencies as it moved up the learning curve, and learnt through trial and error. KFC learnt through its experience how much of the original business model should be kept, and how much should be discarded (Michelson, 2007 pp. 6-9).
KFC invaded China in 1987, when western style fast food chains were still a novelty for the Chinese consumers. The people of China were still rigid as far as their culture was concerned, and followed their traditions by wearing Tunic suits and riding bicycles. KFC was a new taste from the Americans, and it was a novelty for the Chinese consumers. The Chinese consumers who had the ability to spend money went to KFC chains for a special occasion but, not as a favourite place to eat. KFC made progress at a steady pace, and it is one of the well known success stories in China (Smith, Pont & Jones, 2003 pp. 4-9).
The Chinese government started allowing greater access to foreign companies in the Chinese market, for the growth of its own economy. KFC has moved up with the speed of several other multinationals, learning with trial and error. KFC’s strategy was very similar to what the Levendary café has been proposed to follow after the analysis (Ireland, 2004 pp. 3-8). It positioned itself as a brand that was part Chinese, and expanded rapidly by taking advantage of the opportunities posed by growth in urbanization. KFC developed a vast logistics and supply chain with the passage of time and trained its employees extensively for excellence in customer service. KFC has been owning restaurants all over China, rather than franchising them (Berger, Frame & Miller, 2005 pp. 4-8).
The concept behind localization of KFC in China was that the United States model would apply to only the very extensively developed cities of China. The goal of KFC was to expand at a rapid rate, and reach out all over the country (Bian, 2002 pp. 3-8). Localization of KFC allowed the organization to reach out in every corner of China, and achieve the same level of success that it had in United States. The executive managers of KFC thought that a Chinese ambiance and the menu were necessary to win a large consumer base in China (Chari, Kehoe & Mcgrattan, 2000 pp. 4-10).
It was learned through the extensive analysis of Levendary Café case that Levendary Café needs to take a hybrid approach to win over China. Louis Chen thought that the business model for Chinese expansion should be entirely altered, and localized for the Chinese environment. However, Mia Foster thought that it would be more appropriate for Levendary café to follow the same business model it has been following in United States (Ireland, 2004 pp. 3-8). The reasons behind Louis Chen’s viewpoint were that he thought the Chinese environment was so drastically different from the environment of United States, that it would become difficult for Levendary Café to survive without altering its business model. However, Mia Foster thought those Levendary Cafés years of success were a proof that the current business model was appropriate, and would generate equally satisfactory results in China (Ireland, 2004 pp. 3-8).
The KFC China outlook seconds what has been learnt through the Levendary Café analysis (Takamine, 2006 pp. 5-8). China is a fast growing economy, and it is the best market for any organization to expand, provided it follows the right strategy. Levendary Café has been proposed a mediate strategy for future, by slowly positioning itself in the market with its new foreign tastes, while providing the traditional food to its customers also. It should also follow the rules and regulations of the country, and develop a new business process for auditing and other purposes to save excessive costs and hassle on the part of the organization. Levendary Café should also work on developing customer loyalty and customer relationships to maintain a good position in the market. KFC has been following these strategies in China and plans to pursue them in the future. The resulting success is witnessed by the whole world (Zha, 2002 pp. 3-9).
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