Levendary Café: The China Challenge

COM 361

Cohort 2

Professor Yan Shen

2016/10/04

Team 21

Evan Markinson

Patricia Gerstlauer

Gideon Rapaport

Miranda Sakich

Zhiyun Chen

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 INTRODUCTION

The new CEO of Levendary Café, Mia Foster, is faced with a complex matter of the

company’s expansion into China. She has identified three key issues and concerns regarding the

China operation through communication with Louis Chen, the vice-president of Levendary

China.

1. A management strategy is required for the current assets and further expansion into China

with the following specific considerations:

a. A decision regarding how to handle the almost entirely independent President Chen

working under a contract expiring in a few months.

b. Decision-making and implementation responsibilities must be balanced between the

American headquarters and Chinese subsidiaries.

c. The difference in accounting standards used by Levendary Café China must be resolved.

2. Levendary must decide how it will adapt its current menu and knowledge of American cuisine

to China and how it will position itself in terms dining format.

3. Levendary must choose what degree of consistency it will accept between American and other

locations and distil a unifying global aspect of the brand’s identity.

ANALYSIS

An analysis of these problems and potential solutions will revolve around the understanding

that Levendary must ensure its strengths in the American market are transferrable and feasible in

China. There must also be sufficient demand in China for their products to make the expansion

worthwhile. The SWOT framework in Appendix 1 identifies the strengths and thus competitive

advantages that Levendary has in the US. The CAGE framework in Appendix 2 identifies the

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 distances between two countries, which could affect the application of the competitive

advantage.

1. Levendary Café China is currently operating without a strategy according to VP Chen, much

to the concern of Foster. Chen was given free reign for two years and has shown some hostility

and aversion to communication with headquarters. Many aspects of Levendary China contradict

the principles and norms of the company in the US. Some of the Chinese locations do not serve

American menu items and the restaurants vary greatly in dining format, threatening the brand

image. Levendary’s strength of consistent, high quality, and personalized service has not been

implemented. A strategy needs to be created that will distribute decision and implementation

responsibilities between the headquarters and the subsidiary.

2. Foster correctly recognizes the difficulty in localizing a food chain into a new culture. Food is

highly culturally dependent as is shown in the CAGE framework in Appendix 2. This big cultural

distance also neutralizes Levendary’s native strength of following food trends to increase image

and variety. Chen believes that Chinese people want the food they already know but with “cool

American branding” while CCO LeClerc wants the menu to remain as he designed it. Those

opposing views about adaptation are the topic of the Adaptation Continuum of International

Food Brands in Appendix 3. Of the brands which succeeded in adapting to the Chinese market,

all had to make some change in menu and format. The degree of adaptation greatly varied and

Levendary will have to place itself in terms of menu and format adaptation in the Appendix 3

continuum.

3. As an American food chain entering the global market, Levendary Café will have to decide

what it wants its international brand identity to be. According to the semi-globalized perception

of international business, the strengths of the brand, which can be globally applied, should be

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 used as the international branding with other details left to local adaptation. Levendary’s US

business has made a priority of “delighting the customer” and this strength and competitive

advantage should be universally adaptable. CCO LeClerc expressed concern for American

travellers having their perception of the brand ruined by encountering a different menu and

dining format in China. This must be resolved with an international brand promise.

STRATEGIC OPTIONS

1. Options for management strategy

a) Options for Louis Chen

i) Release Chen when his contract expires.

ii) Renew Chen’s contract and hire an American Co-VP for him in a support role.

b) Options for facilitating decision-making

i) Continue to allow Levendary China have free reign over their own operations.

ii) Standardize operations globally and create strategy in the US headquarters.

iii) Establish a head office in China and require employees hired to receive consistent training.

c) Options for accounting standards and administration

i) Continue as is, reformatting the data received from China in the US.

ii) Standardize accounting practices worldwide using GAAP.

2. Options for menu adaptation and dining format

i) Create a set global menu and dining atmosphere with a few local options (quick service).

ii) Have localized menus with a few worldwide options (casual dining).

iii) Make adaptations to core offerings and have half of the menu local cuisine (casual dining).

3. Options for international brand identity

i) Create the brand promise of impeccable customer service, and offer menu personalization.

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 ii) Create the brand promise of healthy and trendy food.

iii) Create the brand promise of American cuisine at a consistent standard around the world.

ACTION PLAN

Strategic Evaluation

1. There is the option to release Chen when his contract expires. The advantage to this is that

Foster could hire someone who will follow the values of the company, but the disadvantage is

that the company would lose their only strong connection to the Chinese market. If Foster

decides to keep Chen, she should establish a team in China to support and monitor him. This

would benefit the Levendary management, as it would encourage more open communication

with Chen. The danger of this is that he may feel threatened by this oversight.

Levendary China’s accounting practices also need to be addressed. Foster has the choice to

maintain the current accounting system, or change it to align with GAAP. Establishing an

international GAAP standard would help foster consistency between Chinese and American

management. It would also improve efficiency, as the American VP of Finance would no longer

have to unscramble the records for China. As Chen expressed, the disadvantage of this would be

that it would be a huge financial investment to make this transition, but it is most fair that

Chinese operations bear their own accounting costs.

2. Foster must make a decision about future menus for China. The three most successful menu

items in the US namely the turkey sandwich, cheese soup and chicken caesar salad each

exemplify a cultural distance too great to implement without adaptation.

Completely changing the menu to Chinese food can be beneficial because Chinese people will

be familiar with their local cuisine, however, the problem with completely localizing the menu is

that it will take away from Levendary’s brand image. The management team is concerned that if

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 all menu items were changed, as Chen has done in some locations, American tourists and

expatriates could lose their trust in the brand.

3. In crafting its international brand promise, Levendary will inevitably introduce constraints

upon its international operations. In projecting the brand promise of excellent customer service

and personalization Levendary will need to maintain a quick-casual restaurant at the very least.

Other successful brands as shown in Appendix 3 have significantly changed their operations to

include more service. Fierce competition from local street vendors serving fast food makes

competing in that market impossible. The brand promise of healthy food and following trends,

which is very successful in the US, will need knowledge of the Chinese consumer and market to

apply. This advantage can be transferred, but carries the risk of missing trends and requires

expertise and extra cost. McDonald’s successfully implements American cuisine standardized

around the world as a brand promise but it relies on very heavy international brand recognition.

As a smaller brand Levendary does not have this recognition, and this low amount of localization

would preclude expansion into areas with fewer tourists or American expatriates. Customer

service and healthy, trendy food could be combined into the brand promise but will feasibly have

to be done one at a time on a timeline.

Implementation

1. Foster should renew Chen’s contract when it expires in three months since he has

demonstrated that he is an asset to the team and has valuable expertise in the Chinese food

industry. Furthermore, by the next fiscal year they should implement a consistent accounting

standard (GAAP) with the US headquarters, and keep two sets of books if necessary. All

employees in China and the US should receive standardized training to ensure all operations

align with Levendary’s core values.

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 Foster would need to have more oversight over Chen’s decisions. Within a year she should

establish a head office in China, and hire a Co-Vice President of operations to work alongside

Chen. The China Head Office corporate structure is shown in Appendix 4.

2. Foster should adapt the Chinese Levendary menus while still keeping transferrable American

favourites. Within the first year, each menu will consist of items that are served in the US with

minor adaptations, and the other half will be local Chinese cuisine. By this time, Chen needs to

hire a Chief Concept Officer to operate at the Levendary China head office. The CCO of China

will have district representatives who will work under him to ensure both American and Chinese

menu items in each region are kept relevant for the local customers. A long-term goal for

Levendary is to be able to select the best selling American and Chinese cuisine offerings and

consolidate them into a single China-wide menu within three years.

3. Levendary should begin with implementing their international brand promise of excellent

customer service and “delighting the customer”. The most important step that needs to be

addressed early on is for Levendary to make a transition from the ‘quick-casual’ stance they had

in the US to a ‘casual dining’ experience in China (Appendix 3). These need to be consistent

throughout all China locations, and existing incompatible locations will be shut down.

For the purposes of long term planning, Levendary will implement a healthy and wholesome

menu following food trends for its Chinese operation within 3 years as the company’s knowledge

of the market develops. These three years will allow Levendary to learn the market and recruit

the talent that can do for China what CCO LeClerc did for the US.

In utilizing these strategies Levendary Café may best apply its strengths and competencies in

China and make a success of its first major international endeavour.

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 Reference List

Shan, Y. (2016, September 15). Forces of Localization - The CAGE Distance Framework.

Speech presented for COM 361 Lecture at Gustavson School of Business, University of

Victoria.

Shan, Y. (2016, September 27). Swot Analysis: Internal and External Assessment. Speech

presented for COM 361 Lecture at Gustavson School of Business, University of Victoria.

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