Levendary Café: China Challenge
Levendary Café faced some successes and many challenges when penetrating the Chinese Market for their first time. The goal of this case study is to understand what kind of initial strategies did they adopted and the main problems that arouse as a result of their decisions. The analysis will point out the main issues faced by the organization as well as potential alternatives that could be used to address their concerns. Finally, an optimal solution will be proposed in order to resolve the situation in which Levendary Café is involved. Levendary’s first steps and industry analysis
Although Levendary Café’s decision of entering Chinese market faced some tough challenges, the organization also took some good steps. First of all, the decision of entering China as the target market was a good decision. According to a report by IBIS World, “this industry revenue grew by 3.4% to $190.2 billion in 2011 and 2.6% to $195.2 billion in 2012. Industry revenue growth will level off as growth rates approach historical levels and the industry is forced to contend with the market saturation issues it has grappled with over the last 10 years.” (Zwolak, April 2010). Since the American market was already saturated, Chinese market offered an attractive alternative of expansion for Levendary Cafe. China was a market of 1.4 billion people where economic growth was around 14.5% and where growing middle-class citizens, who demonstrated a positive acceptance of quick service restaurants, had a larger disposable income. The original idea of looking for foreign ventures proved also the good performance of the Business Research and Development department, which was taking the correct steps to enter this market. Apart from this, the previous experience of other companies such as KFC or McDonalds was a good example of U.S. Corporations able to attract a significant amount of customers and handle the existing competition in the market. The restaurant industry in China as well as in the U.S. is segmented, which means that rivalry is high because all competitors offer the same kind of products although the concept of establishment differs in each market. The threat of substitutes is also high since there are many other products to choose from: specialty or casual dining establishments. However, Levendary’s focus adaptation strategy targeted a segment of consumers that were more health conscious and that followed industry trends, which gave them an advantage over their competitors of serving a specific niche in the market. Problem statement and main issues concerning Levendary café’s actions. The main problem that Legendary Café faced was to enter a market like China relying on a tacit agreement with a Chinese operator without a written agreement. Due to the lack of a strategic plan, Levendary Café was unable to set up a common goal to be followed by the Chinese Operations department. In addition to this, the lack of communication between offices cascaded in the adoption of different finance practices, and as a result, there was a lack of transparency and agreement reflected in the confusing business models adopted. As mentioned above, the experience of other American businesses serves as an example of actions to be avoided by Levendary Cafe. For instance, Pretzel Time did not study the assimilation by Chinese consumers of their stores’ decoration. KFC or McDonald’s used joint venture as successful ways of entry for the Chinese Market. These two examples give us an idea of what Levendary Café did wrong when entering the Chinese market. First of all, the election by Chen of smaller locations, less full-time staff or even the format of the stores as shown in Exhibit 3 are opposite to the standardized stores established among the U.S. Levendary should have taken advantage of the difference regarding store costs as well as labor costs between China and U.S and try to replicate the American facilities in China. Bigger...
Cited: Deloitte. (2014). Taxation and Investment in China. Reach, Relevance and Reliability. Deloitte Touche Tohmatsu Ltd.
Zwolak, R. (April 2010). Fast-food fallout: Health-conscious and cash consumers serve as an industry challenge. IBIS World Inc.
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