Levendary Cafe Case Study: Breaking into China
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Evaluation: Entrance into the China Market
The decision made by Levendary Café to enter the Chinese market faced numerous challenges, as well as few moments of success. First, it was a safe decision for the company to penetrate the Chinese market given the fact that most of its competitors had already made a successful entry. The domestic American market had been over-exploited; thus, the idea to look for new foreign ventures was a result of efficient management in the business research and development. The important fact to realize is that the Chinese market possesses most of the significant features needed for a corporation attempting to establish the restaurant business. First, the country has the population of over 1.4 billion people, who are a ready market for the business entity’s services and products. The assumption that most of the population are affluent middle-class citizens, who have demonstrated a positive trend in the lifestyle of eating-out indicates that the entity can establish its customer base more easily and quickly. Consequently, it should also be noted that the country has enjoyed an upward economic growth trend, which reflects a larger disposable income amongst the potential customers. China economic growth has increased significantly to 14.5% over a short time span. This fact proves a significant contribution to the level of investment attractiveness, which the country possesses.
Given that most of the competitors had already entered the market and managed to secure a significant customer base, the chance of Levendary Café to establish operations and post profits within a reasonable time increased. For instance, it is stated that both KFC and McDonalds had already established a base in the country and were performing relatively fairly in the market. However, the entry into the Chinese market overlooks certain key facets. For instance, unlike the American market where developments and improvements are made to attract wide customer base through the provision of “delightful services,” the Chinese market, under Chen, does not seem to realize the value of the customers. In the effort to lure more clients and thus establish a wider customer base, the American operations went an extra mile to embrace a personalized approach in their services. This extra hard work is paid off when the customers, pleased with the service received, remain loyal to the café in the future.
While it is true that most of the American restaurant businesses have ventured and continued to enjoy successful operations within the country, others have failed miserably. This is a point worth noting in the course of the market entry. It is difficult to comprehend the fact that most of the unsuccessful businesses in the Chinese market failed not because of poor management but because of failure to conduct thorough and concise research. For instance, Pretzel Time failed in the market because of its ignorance of sitting arrangements. The Company had underestimated the need to study and assimilate decent decor. Thus, the tile decor that was used in its establishments was associated with a bathroom. This failure of the company designer put many potential customers off.
From the information provided in the case study, it is certain that there are different levels of competition faced by the company locally and internationally. This, in fact, should form the basis, upon which the headquarters implement a plan in securing a distinctive market niche. The fact that most of the local cafés have taken foreign competition positively and begun standardizing their operations with stringent controls depicts possible threat to the entry of the business, especially because the process requires intense research and development of the market.
Another element worth noting concerning the entry into the market revolves around Chen’s decision of selecting numerous locations across the country. It is easily assumed that Chen’s key objective for the entry was ensuring the businesses break-even within the first year of operations. This was totally contrary to the objective of the chief CEO. Her objective for Chen was to establish a reliable market niche, from which further business expansion activities could be made. Locations assigned for most of the café’s subsidiaries were not thought-out precisely and objectively. It seems certain that Chen chose locations depending on their prices. For this reason, his desire was to cut costs at all levels, in order to attain his long-term goal of achieving a break-even point for the business.
Furthermore, the plan to enter the Chinese market was not implemented effectively. This is depicted by the late realization of the need to adopt the GAAPs in respect to accounting for the revenues collected. This step is considered to be expensive, and that might be the reason for Chen’s refusal to adopt it given as he opted to minimize costs and attain his personal objective.
Propositions which Can Be Used to Help the Situation
It should be noted that the Chief Executive Officer; Mia Foster has failed to reason out with Chen who has been assigned the task to oversee the expansion of Levendary Café into the Chinese market. The cause of conflict is considered to be associated with both negative attitude of Chen towards the CEO, as well as his poor leadership skills.
Within the operations of any given business, it is ascertained that personal goals of each department and every employee should complement the overall goal of the entire firm in order to avoid possible elements of chaos and consequent failure. In this case, it is assumed that Chen’s personal objective did not coincide with the overall objective of the company, for which the expansion activity was undertaken. Chen’s personal objective revolves around minimization of costs, in order to attain the break-even point within a span of one year as it was agreed in the contract. On the other hand, Foster’s objective for entrance into the Chinese market was heavily dependent on attracting a significant amount of customers. This contradiction in the execution of duties and responsibilities is considered to be the core cause of the conflict between Chen and the café’s managers in America.
In our opinion, the following suggestions will help to eliminate the underlying conflict of interest between Foster, the chief CEO, and Chen; the CEO of the Chinese operations. First, there is an option of closing down the entire operations of the restaurant business in China and thus leaving the market. This decision can be permanent or temporal depending on the underlying facets on the ground. For instance, the closure can be made temporarily in order to allow the company design an effective planning strategy before re-entering the market again (Balzer, 2010). Planning should involve dismissing the current China operations CEO - Chen, and replacing him with a competent professional. Second, the closure can be permanent due to the fact that the business has not registered profits for the entire period of operation. Through conducting a concise analysis of the provided financial statements, it is almost certain that the business is not going to make any profits soon. This is associated with the fact that the café has been managed poorly for a considerably long time. Chen, as the Chinese operations CEO, does not seem to present a clear vision of the business future but instead embarks on conducting the operations using a traditional approach. Permanent closure is also an attribute of unawareness on the part of the headquarters given that they have never taken an initiative of getting involved in the Chinese operations until the last minute.
The second option might be closing all the Chinese-like restaurants and replacing them with restaurants, which assume an American concept. This option will prove effective given that such competitors as KFC and McDonalds have stuck to their foreign décor and still managed to secure a vast clientele base. For instance, McDonalds have gone a notch higher in maintaining its Americanized designs by importing furniture to the foreign markets, in order to identify with its international clientele. On the other hand, it is positive to note that Levendary Café clientele travel most of the time; in case this clientele fails to identify with the Chinese operations as a whole, image of the business can suffer. It should also be noted that, with the option of assuming an Americanized restaurant, a significant number of restaurants would be closed down in order to attain a figure, which will keep-up with the spirit of serving customers with “quality” rather than “quantity.” This, in turn, means that the Chinese operations will be forced to operate at a low number so that demand for the services is built on an even pattern.
The third suggestion is to let the Chinese operations keep on with the activity and thus put trust on Chen. This might be the challenging option to undertake, but it is contrary to the two-year period contract concluded by Chen and Leventhal concerning the business operations. This option requires Foster and her team to keep off from interfering with Chen’s model of leadership and evaluate his performance after the one-year break-even period. It also requires that Foster comes to terms with the fact that Chen is conducting the operations for achieving his personal goal, which is totally contrary to the overall goal of the project: establishing a concise and loyal customer for further expansion into the market.
Fourth, the headquarters can choose to conduct the Chinese operations as a Chinese affair. This means that the Levendary café will be operating as a Chinese café and thus provide local dishes to its customers. This option can be viable given the fact that most of the localized restaurants enjoy a vast customer base. However, this option is vulnerable to stiff competition from already established restaurants offering a similar service.
Fifth, the headquarters, under the leadership of Mia Foster can opt to embrace a mixed concept facet. This requires immediate transformation of the services offered so that more than two menus are served in the same establishment (Balzer, 2010). In this case, Levendary China will be forced to provide customers with both the Chinese and Americanized menus in order to satisfy the different demands of the market.
The mixed concept can also assume another strategy, which involves different establishments offering different menus. For this concept, two restaurants will be created: Levendary Chinese and Levendary American. Levendary Chinese restaurant can be located in the less developed areas of the market while Levendary American can be located in the developed areas of the same market, in order to attract different customers.
Specific Action Program for Foster
The first matter that Foster should discuss with Chen considers the differences, which arise with the drivers of revenue. In the Chinese operation, the key driver for revenue is the volume of sales conducted within a certain period of time. On the other hand, the key driver of revenue for the American operation is identified to be the gross margin. This accounting difference should be made a core agenda for the meeting, in order to reconcile the revenues using a standardized approach: GAAPs methodology.
The second concern that might be the topic of the two CEO’s conversation is putting the focus on defining elements attributed to cost drivers, marketing strategies for the business, and the fundamental aspect of conducting frequent risk analysis. Chen should be made to understand the fact that costs are received from such elements as rent and overheads, maintenance costs, labor and advertising costs. Furthermore, he should be made to realize that standard approaches for costs accounting are employed only when they are incurred.
With respect to conducting a fair and sound market strategy analysis, Chen should be made to understand that certain features matter a lot in the course of determining whether to expand the business or not. These factors include determining the level of investment portfolio, expanding business with the knowledge that there will be no start-up costs and financing needs, access to relevant marketing forecasts, which are useful in foretelling the profitable future, and redefining possibility of motivation and recognition elements in that matter.
Third, Foster should be able to present a fair lecture to Chen and explain the significance of transparency in working towards achieving a similar goal. Chen and his managerial team should be made to develop effective communication and leadership skills, in order to maintain a coherent professional environment, which is considered to be useful in conducting successful business operations.