Levendary Café Case Study: Risks In Expanding The Company Globally
Question
Task: Write a detailed analysis of the risks faced by the levendary company while its expansion in China.
Answer
Below is a detailed levendary café case study which provides the risks the company faced while it entered in China.
1. It was in an adaptable approach that the Levendary Café entered the highly competitive market of China. As the Levendary Company was owned totally by overseas proprietors, there were expectations that the company will maintain the command on majority of its movements and factors such as the brand value and goodwill of the company, total command over the operations in the store, the practices followed in the financial performances and movements of the company etc. Although these approaches should have been worked in other countries, in China this way of introducing itself in the market created many hindrances and challenges for the company. However, the company was ready to take the risk as this way of operation would provide the company total control over all its processes. There were many options in front of the company in order to opt for a less challenging path like engaging in a joint venture, making alliance strategically or undertaking or acquiring a similar enterprise (Kluyver, 2010, p. 107). But these resources would have reduced the company’s control over all the processes.
Many factors should be taken into account while analyzing the feasibility of the Levendar Company’s entrance into the Chinese market. When the company had entered into the Chinese market, the country had a population of 1.4 billion and displayed an economic growth of 14.5% yearly in the Gross Domestic Product in the past decades. The management and the entrepreneurs of global companies refer to the GDP of the country as it will help them in drafting their decisions and strategies (Cavusgil, Knight, Riesenberger, Rammal, 2014, p. 6). The trends followed by the Chinese population were also very promising for the company. If collected census data the population of China had increased with a rate of 10.4% from the period of 2000-2009. As the company was targeting the middle class of the nation’s population, it was very appealing and motivating for the company heads that the per capita earning of the middle class ranged from RMB 6,280 to RMB 17,180. The current trend in the Chinese population indicated that it is progressing towards a better lifestyle and adopting the western ethos and traditions like eating out and attending parties at night. Since the ladies in the Chinese society has acquired more acceptability and are taking part in the financial activities, the status of the middle class has increased, thus the market for food in the nation has increased tremendously. The American competitors of the Levendar Company like Pizza Hut, KFC and McDonalds have already entered into the market using their own methodology (Bartlett, Ghoshal, 2002, P. 7). The condition in the Chinese market was well suited for the entry for a company like Levendar but there was already the presence of subsequent competition in the market.
It was the need of the Lavendary Cafe to enter the Chinese market because they wanted to organize and merge the operations along with its concept. When the company had entered the market of China, Chen was provided with the power to devise strategies and actions of utmost importance but there was a basic operational framework provided by the company. All his decisions and activities should be under the framework provided by the company. Louis, the manager of the company appointed in China had years of experience and retained a strong relationship with the major stakeholders in the Chinese market. The company had instructions to him to formulate a plan to poise the company in a better position by accepting the method of franchising and whatever ways which are essential and fine to achieve the goal. There were fewer restrictions on the activities of Chen as his works were only slightly managed by Leventhal, the CEO. The company has accepted a very strict policy in operating the Levendary Café by the rules promulgated the board of the company. The company had allowed some frivolousness only in the rules relating to the look of the organizations and its establishments.
The company had adopted these policies in order to adapt its Café and outlets to attract the youths of China. This will help the company in building a long-lasting loyal customer base in China. The company has organized its branches and outlets of China in a model which is different from which is followed in America. The manager, Chen has informed the company’s outlets to adapt itself to the preferences and taste of the local tradition. It was evident that Chen had not devised a clear plan which should bring the company in the path of success. Chen has not referred to the processes the company had followed in the USA and adopted a completely different vision for operations in China. Because of this, there occurred an absence of proper communication among various departments of the company.
In the process of ascertaining its position in the Chinese market, the company had to recognize the vast difference between the cultures of the US and China. The food preferences of Chinese people are different from those of the citizens of the USA. Chen has observed this adopted a policy to alter the food products and its presentation of the products introduced by the Legendary Café in a Chinese way, which was, in fact, a very smart and crucial move for the company. The closed communities of China have adopted these altered products. Although this policy was advantageous initially for the company, the altered foods were affecting the image and the identity of the company. Thus the policy of adopting the culture of China in order to alter the company’s product was proving to be a malicious decision. The usual dishes of the company like its cuisine from organic materials would have been cherished by the local people since they love eating fresh food. If the company had continued to its original menu then they would have gotten a strategic advantage.
The outlets of Levendary should have concentrated its effort on providing personalized service as the restaurants in China were not providing such services in the restaurant. Since the company had only operated in the USA it was evident that the management was lacking the efficiency in the experience of operating in a foreign company. In order to avoid the probable mistakes and poise themselves at a better and strong position, the board of the company should have well acquainted itself with the probable risk in the market. The company was also unaware of the accounting framework and financial laws followed in China. Since the country was not following the standardized form of any accounting system and other operational methodologies, the officials of the company found it really challenging to analyze the financial outcomes. According to Louis, it was the failure of company management that the GAAP was not followed in the reporting of the financial state.
By the policies of Chen, it was evident that his aim was to acquire high profit in the account of the company, and for that, he was even ready to risk the reputation of the company. The company management should also give its focus on adjusting and acclimatize itself with the conditions of China rather than just concentrating on finding a path for better success and profit.
2. The newly appointed Mia Foster should focus on bringing a modification and variation in the current policy of Chen. Mia should adopt a strategy to make an environment so that both she and Chen could work in the company amicably. This strategy will help the company in eliminating any altercations between them and ensure better coordination between them which will benefit the company eventually (Ghemawat, 2010, p. 222). Mia should take assistance from Chen in understanding the local market and find the motive and strategy behind making 23 different franchises in various regions of the nation. A better exploration and investigation should be conducted by Mia in order to understand the preferences and the differences they show as compared to the culture of the USA. In-Depth research on the food preferences of different communities in a different part of the country should be analyzed and a detailed report should be made on what sort of food combinations may repel the consumers so that such combinations should be removed from the menu. Mia should be also given the charge of conducting an investigation and scrutiny on finding the latent factors, whose alteration may result in a dynamic change in the course of the company. If Mia conducts such researches she can avoid altercations with Chen and stakeholders since she has the in-depth knowledge of the situation of the company.
Mia should be able to convince the manager, Chen using appropriate data convince him in acknowledging that the methodology adopted by her is actually effective and attainable. It is only after that she has made a better favorable understanding with Chen that the modifications in its headquarters needed to be considered. The first step she should take in applying a new strategy is that the outlets and its major shops should be convincing for the Chinese public and acceptable to the society of China. Application of this step is very significant as it will aid in modifying the operation accordingly and accelerate the company to the path of success. This might require a change in the style of management, special offers, advertisements, the place where the café is located, the atmosphere provided, etc.
After this step, the company should provide Mia with the duty of providing recommendations on what changes should be done in financial processes so that the periodic transactions in the company should be analyzed. She should recommend for establishing and outsourcing the job to a Chinese accounting company and then this should be converted to the universal format of accounting framework. Adopting this technique will increase the quality of communication and lowers the probability of altercations between the USA and the Chinese unit. This will provide transparency in the processes of the company and eliminate any threat from the law of that country.
While implementing these strategies Mia should consider the flexibility of the business and its processes. The major factor which affects the flexibility of the processes is the system followed, structure and steps in carrying out a process, internal forces, and susceptibility of the business to several markets (Inkpen, Ramaswamy, 2006, p.373). The flexibility should be incorporated in the system in order to imply the model followed in the US model and thereby a consistency between the restaurants of US and China sustain. In order to adapt to the various locations, the size of the outlets and restaurants may vary. If the company accept this strategy, the franchise section will be the one who will be benefited the most. Mia should make further recommendations to the company in order to develop some contacts in the Chinese community and stakeholders. The development of contacts will help the company in maturing and progressing new partnerships which will implicitly aid in conciliations and negotiations with important stakeholders. While doing this the company should devise an organizational framework which incorporates both the features of American and Chinese community.
3. It was observed in this levendary café case study that in order to be effective in her position Mia should streamline efforts and display that she can handle the market conditions and the changing dynamics of the Chinese market. It should be notified by Mia to the higher authorities that the two headquarters which are situated in the USA and China are missing a link or common understanding which is till now not noticed. In both the USA and China hierarchical approach is taken, while the difference is that in the USA it is in the top-down model and in China it is the bottom-up approach. Several strategic decisions and change in the course should be taken by the higher authorities and the management in order to acclimatize with this situation. Many awareness class training should be conducted among its employees in order to augment their knowledge of Chinese culture. In order to meet the requirements and the palate of the Chinese community, the company should introduce some new products in their menu preserving the basic identity of the company. The company should also give focus on some other areas like in increasing the number of branches, attracting more stakeholders and thus increasing its franchises, etc.
It is recommended by this levendary café case study that Mia should conduct a vast investigation in various processes while referring to the feedbacks and review of the customers, surveys, live questionnaire, etc. It is in the hands of Mia that the company should be shifted on a better track of progress. For achieving this, a special bond and trust should be developed between the company and stakeholders. The probability of possible contracts must be listed which may help the company to engage in beneficial contacts with the Chinese contacts and thus help in providing a satisfactory service to the customers. While doing these activities and proceedings it is important that a link is maintained between the cultures of both countries. It is recommended in this levendary café case study that the proceedings should be carried out in two stages.
Since the major American companies like KFC has already created a position for itself in the Chinese market, in the first stage as described in this levendary café case study it is recommended that the company should follow the paths and strategies of KFC. In this stage itself, the employees should be trained about the Chinese culture and basic knowledge of Mandarin. Certain factors should be taken into consideration and should be subjected to change in order to maintain transparency in the process (Lewis, 2000, p.6). An auxiliary team should be appointed in order to make aware of the possible risks in the market and central principles of the company. The shops and other main outlets of the company should be modified according to the new strategy adopted by the company.
The company needs a high control over the activities of the company. So in the second stage, more investment should be attracted from the USA which will strengthen the position of the company in the market.
It can be concluded that the implication of the strategies and the procedures as described above in the levendary café case study will increase Mia’s ability in handling the company in the dynamic economy of China by virtue of which she will be able to bring the company in the path of progress without sabotaging the reputation.
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References
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.
