Levendary Caf : the China Challenge

Question
1:What is your evaluation of the way Levendary Cafe has entered the China market?

The entrance of china was more opportunistic expansion rather than strategic. The huge
population of 1.4 billion people and annual GDP growth of 14.5% over the past decade, Chinas
urban population rise from 36.2% of the total in 2000 to 46.6% in 2009, and the strong middle
class whose per capital income surged from RMB 6,282 to RMB 17,175 (In 2010, RMB 1 = USD
0.15.) all made china as great opportunity for the restaurant that was facing a mature market
that had a growth of merely 1%. Another attractive factor of china market was the success of
many American restaurants such as KFC, McDonalds and Pizza Huts. However China has
proven a difficult market for US restaurant chains such as California Pizza Kitchen and
Applebees because such extremely different culture needs new commerce to strongly adapt to
their culture. Levendary main issue is not entering Chain's market but whether such decision is
a right decision and if do so how to survive in such aggressively competitive market, to which
extent the management have a detailed plan about and control over the penetration in the new
market, adequate information about the culture and a proper communication with the
management in china. When Levendary entered China they gave Chen the full control over the
operations there, although a well-developed detailed plan and a clear tactic of how to
implement this plan is a must. However it is clearly this is not the case whereas everything had
been handed to Chen from A to Z. The chain of Levendary Caf in USA are run by a strict set of
rules and allowing modifications only after approval from the concept group regarding the
look and feel of the firm. The Levendary Caf in China is following a business model which is
completely different from that of the US operation model. Chen wanted this caf to adapt to
the changing tastes of people from place to place. However he has no clear strategy or
reasonable clarification for some actions such as locating some cafes in suburbs or in rural areas
although there is so much room for expansion in the huge urban markets or turning some cafes
into counter-only. And this might be because the philosophy and operations of Levendary have
not been communicated clearly to Chen from the beginning and there was no control for 18
months that Chen worked during without referring to the US management. The culture
differences between US and China is another major issue that should be understood by
Headquarter in US. Customers in China are different from those in US in term of their habits
and food preferences. Chen was smart by being flexible when entered Chinese market because
there are some features that could not be transferred easily into such closed community
nevertheless killed the identity of Levendary and turned it to a completely different restaurant
while trying to adopt to the new culture. He could have been using the differences as a
competitive advantage and differentiate the restaurant among other rivals. For example,
serving organic fresh food which is strength of Levendary would be valued by Chinese
consumers who look for fresh food and have concerns about it or the personalized services that
Levendary is well-known for and Chinese restaurants lack for. Another issue is the lack of
experience with the international market. Levendary headquarter should be aware of the
international operations and the problem associated with and how to fit in and gain a strong
position in such market. They should have more control over the financial reports to follow one
reporting style that is consist with the accepted principles. Chen has no excuse for not following
the GAAP in the financial reports he submitted which should be taken into consideration and
corrected immediately.

Question2:
What changes (if any) should Mia Foster make? Specifically, what should she do about Louis
Chen? And what changes (if any) would you propose at headquarters?

The changes should be made to the operation In China, the relationship with Chen and to the
headquarters. Levendary caf in china should not be completely different from that of US yet
the flexibility is a must to survive in China. Foster should cooperate with Chen to find the
proper way to adopt the Chinese culture and style in term of the menu choices yet they have to
capitalize on what they are good in and use it as a competitive advantage such as the
personalized services and the fresh organic food. They need to be differentiated to be
considered by the Chinese customers. The stores should be located according to a strategic
plan rather than opportunistic ones. Urban arias are the best choice for Levendary. Finally, a
plane for the operation should be put and controlled. Regarding the relationship with Chen, a
meeting with Chen, Foster and the concept team must be held. Foster who is a good
communicator should make everything clear to Chen and let him know to which extent his
changes are acceptable and to emphasize on the identity of Levendary and the image that they
want consumers to have. Another important issue is that Chen has to conform to the
company's planning and reporting processes and work in light of the corporate strategy. Foster
should discard the option of firing him since he has many qualities like the Chinese language,
the connections in China and also he is willing and eager to make this work and also, it is hard
to find a replacement. Since she is known for her frank communication style, she should use
that with him and give Chen notice that his opportunity for contract renewal may be in
jeopardy if Chen cannot work together with Foster and her management team to resolve all the
problems The headquarters should cooperate more with Chen and closely monitor the
operation in China by having periodic reports to correct any deviation from the plan. They have
to give the needed support to have the financial reports in accordance with GAAP and to give
the training if needed for the staff in China.

Question3:
Prepare a specific action program for Foster to her deal with the need for continued growth in
China. What should be on the agenda for her meeting with Chen? What should be on the
agenda is:

1.The marketing strategy: Foster should discuss a plan to deliver a clear, consistent, and
compelling message about Levendary caf and create both physical and perceptual differences
that can be perceived by consumer in China that is consistent with the corporate strategy of the
mother company. Chen should be part of this to have commitment and responsibility to it and
due to his experience in the Chinese market. 2.The financial reports style: Foster should force
Levendary China to follow the mother company's reporting style and show that any deviation is
not acceptable. China's finance team & Chen are responsible for that and headquarters are
responsible for providing any needed support or training. 3.The cost and revenue: : a
specialized team should invistigate why the composition of expenses of China operations is
quite different than U.S. operations and find way to cut costs and increase revenue. Chen has to
have a plan of how to reach the break-even point within 9 months (by the end of Chen's
Contract). 4.Control over China's operations: Foster should schedule for periodic audit and visit
for Levendary China and define the responsibility of Chen and the extent to which he must not
take decision without getting the approval from US. Because it seems that the proper
communication is missing.

Question4:
What global issues are addressed in the case? Identify them and discuss them in depth Some of
the global issues highlighted by the case are the culture differences, the communication with
the subsidiary and the financial considerations. Culture Differences:

There are difference between the Chinese culture and the American culture. Some differences
include the fact that in China people go to eat at a restaurant and quickly leave they dont sit
around whereas in the States going to a restaurant is a socializing experience. This is the reason
the development in China of the cafs is structured differently to those in the USA. The
preferred food is different too such as he cheese that is not liked by Chinese. There seems to be
a missing link between the two cultures that is not being understood by headquarters who
must adapt to Chinese culture in order to survive and find the fine line between introducing the
American tastes and values to the Chinese market and responding to the local taste.

Communication: The second aspect is the barriers that exist with communication. Headquarters
did not do anything to support the business structure in China. Chen feels that they are not
recognizing his effort when Foster talked to him about her concern. Lack of proper
communication led to such situation where Chen did everything without referring to US
Levendary which is considered by Foster as dramatic departures from Levendarys U.S. concept.
A clear communication rules would prevent such problems.

Financial consideration: The subsidiary company should not have a different reporting style
from the mother company. Having a uniform style is must. It is important that Foster and the
home-based Finance Department take a hard look at the numbers from the Chinese operations
and investigate the unreasonable cost figures. It is important to have a experience of the
Chinese market which is considered one of the cheapest for the paper for example but the
financial statement of Levendary China shows a dramatic number as well as for the occupancy
cost.

Question5:
What are Louis Chens qualities as a global leader? Discuss them in light of China and the US.

He had MBA from Stanford University. He is Bilingual in English and Mandarin Chinese. He was
familiar with the neighborhoods in Shanghai and Beijing since he had long experience as a retail
property developer, so he knew the impact of store location on profitability. He had strong
connections with many real estate agents in China which helped him to locate in prime sites at
fair price. He had entrepreneurial spirit to work in the restaurant industry with no experience in
this sector, and he was confident that Levendary will success in the Chinese market. His go-
getter (an aggressively enterprising person) that developed to become a local baron which
might be a professional manager if trained well.