Levendary Café: the China Challenge Case

Executive Summary

Levendary café is in crisis because of its Chinese operations. The growth in its first year of operations in China is very promising. However, Louis Chen, the head of the Chinese operations is becoming too liberal in his approach to opening new outlets. This situation, coupled with the lack of proper reporting structures and the availing of very little information to managers in the headquarters, is the source of strife. Foster is visiting China to have a meeting with Chen. Foster’s agenda for this meeting should include discussion on the need for the creation of a business development plan, the need for stronger reporting structure, and the need for proper branding of outlets.

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Introduction

Levendary Café is in a crisis point. Its growth prospects seem threatened by the departure from norm in the implementation of its business model in China. In particular, Levendary Café needs to streamline the Chinese operation in terms of business development strategy and reporting structures to ensure that the Chinese operation does not destroy Levendary’s brand image. In addition, these measures are necessary to assure Levendary’s long-term growth because the Chinese market requires a long-term strategy.

Several reasons support the premise that Levendary needs to sort out its business model and its reporting structures. First, the growth of the Chinese business using uncoordinated methods will increase the long terms costs of standardization if Levendary does not implement its standards in China (Mongay, 2011). At the same time, it needs to be aware of the changes necessary for it to survive in the Chinese market. Finally, the differences in reporting structures and formats are a threat to stakeholder confidence since Levendary is a publicly traded company (Bartlett & Han, 2011).

The importance of this premise is that the issues raised are fundamental to Levendary’s business prospects. The Chinese operation has a great profit potential for the company. China is one of the fastest growing markets in the world. At the same time competition within the industry in America is getting more intense (Lee, Roberts, & Sweeting, 2012). If Levendary flounders in its market entry strategy, it may find itself trailing the early entrants to the detriment of its profit potential and market survival.

Analysis

Levendary did not plan comprehensively for Chinese market entry. It decided to use Louis Chen, who had relevant business experience in the Chinese market. The CEO, Mia Foster, gave Chen a lot of sway in deciding on how to enter the Chinese Market. As a result, Chen made decisions that did not emerge from an overall strategy, and did not incorporate some of the fundamental aspects of Levendary’s business model (Bartlett & Han, 2011). Three things characterized Levendary’s market entry strategy. First, the strategy lacked strong controls necessary for the establishment of a new oversees business based on a preexisting model. Secondly, Levendary over-relied on Chen’s capabilities without sufficient oversight. Thirdly, there were very weak reporting structures, which further reduced the potential to exert control and give strategic direction to the Chinese operation (Porter, 1980).

Mia Foster needs to make two major changes in the management of the Chinese operation to safeguard the strategic interests of the Levendary Café. First, it is important to strengthen control and oversight over Chen’s management of Levendary’s business interests in China. It is evident that Chen has unique strengths and is instrumental in the growth and expansion of the Levendary franchise in China. However, the free reign given to him can end up putting the company in a strategic quagmire if his strategies fail to work in the long-term (Porter, 1980). This situation, in addition to Levendary’s desire to retain its core characteristics, requires the creation of some restrictions and controls over Chen. Secondly, Foster should insist that Chen develops and works on a measurable plan to guide the growth prospects in China. Chen’s conviction that a strategic plan would have made it impossible for Levendary to grow as much as it did, is a risky approach to the development of an international business. At some point, the lack of a plan will compromise operations.

Handling Foster Chen is a very delicate affair. Chen does not seem to be a team player, yet he is very talented in new business development. However, it is very important for Foster to curtail Chen’s entrepreneurial liberties. Chen must understand that Levendary has a history, values, and a brand image. If Levendary loses its unique appeal, then it will also lose its source of competitive advantage (Porter, 1980).

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Foster can handle Chen in two possible ways. The first option is to allow him to carry on as the virtual head of the Chinese operation after agreeing on oversight measures. This will mean that Chen’s freedom to make business decisions will reduce. The second option will be to reduce the scope of issues that Chen handles in China to ensure that the essential elements of the Levendary Franchise remain under the control of the Headquarters. For instance, Chen can have the power to choose locations, but not the power to design their layout. Foster should approach him with respect, but with firmness.

One of the key changes that need to take place is that Levendary needs to evolve its organizational model to take into account its international business. There is need to have a fully-fledged Chinese office, or a special division in the headquarters to deal specifically with the issues relating to Levendary’s overseas business. The Option of a Chinese office will enable Levendary to have the best possible decisions based on the realities of business in China. In this sense, the Chinese operation will have the autonomy to decide on the brand it wants to build in China based on the values of the organization. A Chinese office will be better at making decisions compared to devolving that responsibility to a single individual (BCG, 2010). On the other hand, a division in the headquarters dealing with international business can make it easier for Levendary to deal with the issues arising from international business. In the case study, Chen was reluctant to use GAAP standards in preparing financial reports simply because China uses a different format (Bartlett & Han, 2011). An international office can help in streamlining such issues.

A plan with the following elements is required to ensure continued growth in China. First, there is need to create a plan for the business in China based on the experience garnered so far. The plan should have sufficient flexibility since Levendary is still very new in the Chinese market. However, it is very necessary for the creation of a multinational chain of stores. Secondly, it is time to institute some focused oversight on the Chinese operation. The better option is to create a national office for China, which can drive Levendary’s business agenda in China. Third, it is crucial to ensure that Chen gets a more specialized role in China because his current mandate is too wide, and it does not encourage sharing of ideas, or scrutiny of the operations in China. The lack of control is very disturbing.

Assumptions

The analysis assumed that there was little or no control exerted over Chen as he developed the Chinese business. It is possible that Chen had rules to work with but he stretched his liberties. The analysis also assumes that it is not necessary to develop a very strict replica of Levendary the way it exists in America, but there is need to maintain the brand elements that define the company.

Recommendations

In order to ensure the long-term growth and stability in China, Levendary needs to implement the following measures.

  1. Levendary also needs to develop a specialized unit to manage its Chinese operations, either as a Chinese office, or as an international office at the headquarters.
  2. Insist on the creation of a business development plan, preferably a medium term plan, as it enlarges its presence of in China. This will help the company to control its growth and to develop a consistent brand image.
  3. There is need to insist on clear-cut reporting structures for Levendary in China to ensure that all the players work together towards the development of the Chinese business.

Conclusion

The main issues that should be on Foster’s agenda include the need to develop standardized reporting structures in the interim to ward off possible shareholder jitters. Secondly, the agenda needs to include a workable reporting structure that meets Levendary’s needs. Thirdly, the agenda should include the need for standardization of the outlets in China because of the risks associated with too much liberty when making branding decisions. The implementation of these measures will secure Levendary’s long-term interests.

Reference List

Bartlett, C. A., & Han, A. (2011). Levendary Cafe: The China Challenge. Boston, MA: Havard Business School Publishing.

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BCG. (2010). Creating People Advantage in 2010: How Companies can Adapt their HR Practices for Volatile Times. Boston, MA: The Boston Consulting Group.

Lee, C.Y., Roberts, J. W., & Sweeting, A. (2012). Competition and Dynamic Pricing in a Perishable Goods Market. Duke University. Duke University.

Mongay, J. (2011). Business and Investments in Asia. Madrid: ESIC Editorial.

Porter, M. E. (1980). Competitive Advantage: Techniques for Analyzing Industries and Competitors. New York, NY: Simon and Schuster.

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StudyCorgi. (2021, February 20). Levendary Café: the China Challenge Case. Retrieved from https://studycorgi.com/levendary-caf-the-china-challenge-case/

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