Professional Documents
Culture Documents
v Levendary Caf v
Hillary Tzeng
v Table of Contents v
Executive Brief 3
Decision Tree 4
Company Overview
Product Mix & Global Presence 5
Current Business Model 6
Value Chain 7
Competitive Advantages 8
Growth Imperative 9
Recommendations 18
v Executive Brief v
To reap the profits derived from possessing a strong brand image, quality
customer service, and consistent company practices across its global
operations, Levendary Caf must enter China as a wholly owned enterprise,
focus initially on an aggregation-arbitrage strategy, and reroute its Levendary
China operations to a new arm of its managerial hierarchy.
Thus far, Levendary China has suffered from a scattered brand reputation. In a
rush to open as many stores as possible, Levendary Caf in China has relied
upon a pure adaptation strategy, which has fragmented its carefully curated
company image. If the company wants to regain full control of its branding, it
should only consider establishing wholly-owned operations to avoid losing
further control.
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v Decision Tree v
Decision Tree
Strategic Alliance
Joint Venture
As Levendary Caf looks past its U.S. borders, it should consider the
next steps regarding its venture into China. In order to maintain the
most control over its foreign operations, Levendary Caf should
continue pursuing a strategy of wholly owning its enterprise in China.
In turn, this will allow Levendary Caf to preserve the integrity of its
original brand while allowing space for customization to local tastes.
Global Presence
Levendary Caf currently has over 3,500 stores in the United
States, 23 stores in China, and a partnership in Dubai. Its most
immediate plans are to expand its store coverage in China to
balance out its slowing U.S. growth.
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v Maximizing Profitability Potential v
Current Business Model
Tight Control of
store expenses
& operations
Speedy service Higher Global
& order margins scale
accuracy
Royalty Volume
Increased need Profits
New fees
for employees
operating tools franchises Negotiation
& learning (OTL) Reinvest power with
Branded
suppliers
grocery
Raised items
consumer Diversified
demand Marketing global
programs portfolio
New menu
boards
International
expansion
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v Coordinating Across All Operations v
Value Chain
Distribution
Ingredients Menu & Sales &
R&D Sourcing Adaptation Service
Marketing
Stays ahead of Willing to take calculated risks that evolve its concept over time
Features new items that incorporate in-trend healthy
the curve in food ingredients
trends Debuts a suite of new products five times a year
Time
In the span of 32 years, Levendary Caf has expanded from one small
restaurant in Denver to a chain of over 3,500 cafes across all 50
states in the U.S., with stores in urban, suburban, and rural areas.
Despite this strong momentum, by 2008, the companys domestic
growth began to slow, because it lacks strong demand in small towns
in the Midwest and South.
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v Evaluating Viability of Entry into China v
Chinas Economic Overview
Population: 1.4 billion
Average Annual GDP Growth: 14.5% in past 10 yrs
10000
0
2000 2009
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v Pinpointing the Right Customers v
Target Consumers
Tier 1 Consumers
Levendary Caf should target global consumers, because these
consumers are more likely to try out new, foreign brands. Their tastes
are more exploratory, as their earnings are high enough where they
have the discretionary income to spend on typically higher-priced
Western brands. These consumers may include white-collar
professionals, expatriates, and high-seated government staff.
Tier 2 Consumers
The upper echelon of consumers who are domestically focused but
upwardly mobile may include college students and the rising working
class. These consumers are knowledgeable about Western corporate
advances into the Chinese market and may be be willing to shell out a
couple extra RMB to try out Levendary Cafs novel offerings.
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v Adjusting for Chinas Latent Flaws v
Institutional Voids
Specialized
Soft Professions, Debt & Equity
Logistics Consultants,
Credentialing Markets, Venture
Infrastructure Intermediaries
Search Firms Capital
Accountants, and
Legal System
Soft Infrastructure
Specialized Consultants, Accountants, and Legal System - China runs
on different tax laws and accounting standards than the U.S., and
oftentimes, reporting accurate financial data back to a foreign
investors home country becomes muddled up in the process of data
translation.
Hard Infrastructure
Physical and Property Rights Security - Pirating and petty thievery is
not uncommon within and among Chinese businesses, so it may be
difficult to develop a competitive advantage over competitors who
have stolen intellectual property or pilfered inventory.
Functioning Independent Legal System - Chinas legal system is privy
to bribery of police or government officials and may not be conducive
toward the security of foreign investors assets.
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v Scoping Out the Industry v
Porters Five Forces
Rivalry (High)
The multi-unit restaurant industry is dominated by independent full-service
restaurants, existing American chains, and Asian chains
Chinese restaurants take the largest share of the quick service segment
Difficulty in standardizing operations makes it hard for independents to
maintain successful local chains
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v Determining Ease of Market Entrance v
Market Attractiveness
Levendary Caf will have no problem with demand in Chinas market for Western
foods and should expect little interference from government intervention, as long as it
follows established rules on foreign investment and capitalizes upon its network of
contacts. Because China is an emerging economy, more middle-class citizens are
finding that they have extra money to spend on foods outside of their local tastes.
However, there is intense competition among all multi-unit restaurants in China,
making it slower and more difficult for Levendary to recover a positive NPV from its
investments in China.
Economic Drivers:
The middle class
Chinese are becoming
increasingly wealthier at
rapid rates, leading to
greater demand for
global foods as people
have more discretionary
income.
Government Drivers:
The Chinese Market Drivers:
government is starting
to become more open
to outside investment
Market China is seeing a surge
of people dining out,
but often delays the
advancement of
Integration and young adults are
starting to develop a
companies who do not taste for Western foods.
have insider contacts.
Competitive Drivers:
There is intense
competition among
multi-unit restaurant
chainsboth Western
and Asian brands.
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v Catering to Changing Tastes v
Industry Trends
KFC
Most successful foreign fast food chain
>3,000 restaurants in 450 Chinese cities
Learned to adapt through joint venture partners and local
management
Some add-on items and altered recipes
McDonalds
1,100 restaurants in 110 cities
Consistent worldwide look & feel
Same core menu plus localized specials
Charged U.S. prices, knowing that Chinese youth would be willing to
pay premium for Western food
Pizza Hut
560 high-end, casual dining restaurants
Menu extends far beyond pizza
Very different from U.S. original
Appealed to young affluent Chinese for date locations
Learning from its Western fast food cousins, Asian chains have started to focus on
standardization, tight control of raw materials, food preparation, and in-store service.
When determining its competitive advantage in China, Levendary Caf must be wary of
these Asian competitors, who have shown strong performance as of 2009:
Little Sheep
$235 million in sales
Hong Kong-based Mongolian hot pot
Ajisen Ramen
$256 million in sales
Japanese ramen
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v Priming the Entry into China v
Entry Priorities
Preserve the
brands
carefully
nurtured image
Balance
Formalize the
economies of
financial
standardization
reporting
with benefits of
process
localization
Strategic Alliance
A strategic alliance with a pre-existing restaurant chain in China would not serve to advance
the brand of Levendary Caf and would give the company less control over its operations in
China.
Joint Venture
A joint venture would grant Levendary the foot in the door that it needs to join the Chinese
quick service restaurant sector, but it runs the risk of not retaining full control over its
practices or of giving away competitive advantages to its host company.
Acquisition
An acquisition of a popular restaurant chain in China is a great way for Levendary to learn
about its market. However, an acquisition may seem like a hostile move, so Levendary runs
the risk of being boycotted by the acquired companys original customers. The two
companies cultures may not be compatible with each other.
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v Revising Current Priorities v
Revamped Entry Strategy
Aggregation Adaptation
Before implementation
After implementation
Arbitrage
Chen must shift his focus away from adaptation in order to begin building a consistent brand
image in China. By transitioning his stores menu offerings to offer Levendarys core U.S.
menu items while leaving room for local menu customizations, Chen can reap the benefits of
economies of scale from aggregating his raw material orders and enjoy the increased
publicity that comes with cultural arbitrage. Such a move toward standardization will make it
easier for Levendary China to measure financial performance according to GAAP, promote
customer service consistency, and allow marketing efforts to be more focused.
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v Switching Up the Pecking Order v
Organizational Changes
The current managerial structure of Levendary Caf inhibits the growth of Levendary China.
Chen is currently stuck reporting to the COO of U.S. operations, and this makes Chinas
operations seem like less of a priority to the company. To put more pressure on Chen to
perform according to standardized best practices, Levendary China should be given its own,
separate 6th division directly under CEO Mia Foster.
Peter Steele, Chief Franchise Lucien Leclerc, Chief Concept Nick White, Chief Operating
EVP, Admin Officer Officer VP, Business Dev. Officer Louis Chen, VP China
VP, Purchasing
Giving Levendary China its own line of command grants Chen the freedom to manage Chinas
operations while staying under the watchful eye of the CEO, who will make sure that Chen is
striking the right balance between staying true to Levendary Cafs brand and catering to
local Chinese tastes.
Should Chen defy the imperative to align Levendary China under a consistent brand image,
he should be swiftly replaced by another manager who not only has network contacts but
also understands the importance behind presenting a uniform front to the Chinese market.
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